Formats and related files
The redistributive and efficiency aspects of personal taxes are of particular interest to both economists and governments designing tax reforms. Traditionally, however, the numerous analytical tools available to calculate distributional and efficiency effects of taxes and transfers are not widely used in tax policy advice. This partly reflects the computational complexities involved in calculating some of those measures and the need for simplicity, and transparency of underlying assumptions, when presenting policy advice. This paper makes two contributions to the analysis of the equity and efficiency effects of tax policy. Firstly, it applies the methodologies proposed by economists to measure equity and efficiency outcomes of taxes to provide some evidence for the New Zealand income tax and transfer system. This makes use of Treasury's microsimulation model, TaxWell. Secondly, the paper examines a database of low-income New Zealand taxpayers. A decomposition by individual and household characteristics shows that different groups of low income taxpayers can be affected quite differently by various aspects of the tax/transfer system. In particular, tax-free zones do not appear to be well targeted to help those most in need.
The research in this paper builds on earlier work with Matthew Bell, Steve Cantwell, Malcolm McKee and David Snell.
The views, opinions, findings, and conclusions or recommendations expressed in this Working Paper are strictly those of the author(s).
Working papers are published to contribute to the body of economic knowledge, and to inform and stimulate wider public debate. As such, this Working Paper does not necessarily reflect the views of the New Zealand Treasury or the New Zealand Government, and should not be reported as such. Furthermore, the paper does not constitute government policy or policy advice to government, and should not be considered as such.
The Treasury takes no responsibility for any errors or omissions in, or for the correctness of, the information contained in this Working Paper.
Table of Contents
- The Evaluation of Tax Reforms
- Taxes, Redistribution and Efficiency
- Measures of Efficiency and Welfare
- Income Inequality and Fiscal Redistribution in New Zealand
- The Distribution of Pre-Tax Incomes
- The New Zealand Personal Tax and Transfer System, 2006-07
- Taxes, Transfers and Redistribution
- Sensitivity to Adult Equivalence Scales
- Redistributional Impact of Alternative Tax-Transfer Policies
- Effective Marginal Tax Rates
- The Composition of Low Income Taxpayers
- Analysis of individuals
- Analysis by Household
- Appendix: Adult-Equivalence Scales