Removing Poverty Traps: Taxation and Welfare Reform in Australia

1992 ◽  
Vol 3 (2) ◽  
pp. 98-114
Author(s):  
M. Cashel ◽  
P. A. McGavin
Keyword(s):  
Income Taxation ◽  
Poverty Traps ◽  
Tax Rates ◽  
Policy Reforms ◽  
Transfer Payments ◽  
Base Level ◽  
Marginal Tax Rates ◽  
State Welfare ◽  
Tax Exempt ◽  
Welfare Changes

This article uses data on the interactions of income taxation and state welfare transfers on effective marginal tax rates (EMTRs) in Australia to argue policy reforms for removing poverty traps created by high EMTRs. This highlights the need for state welfare and income taxation reforms to target those elements of income taxation and social welfare interaction that are most significant for high EMTRs and for high EMTRs extending across wide incomes ranges. Proposed welfare changes involve simultaneous reductions in base-level state welfare transfer payments, along with eligibility for supplementary transfer payments for able persons that are proportional to market labour activity. Proposed taxation changes include removal of distinctions between taxable and tax-exempt state welfare transfers and a gradually-progressive revised taxation scale.

scholarly journals The Age Pension Means Tests: Contorting Australian Retirement

2020 ◽  
Author(s):  
Anthony Asher ◽  
John De Ravin
Keyword(s):  
Social Services ◽  
Investment Decisions ◽  
Current Approach ◽  
Tax Rates ◽  
Discussion Paper ◽  
Future Earnings ◽  
Means Testing ◽  
Base Level ◽  
Marginal Tax Rates

Most Australian retirees are likely to be subject to the Age Pension assets or income test at some point. Evidence is that many retirees adapt their consumption to increase Age Pension entitlements, but long-term implications are difficult to determine—even if the current rules were to remain in place. This chapter evaluates the current approach to means testing against the principles set out in a Department of Social Services discussion paper on this topic. We evaluate the implied “effective marginal tax rates” (EMTRs) on the assets of part pensioners who are subject to the assets test. We find that depending on a variety of parameters such as assumed future earnings rates, demographic status, drawdown strategy and the base level of assets held, the EMTRs are high enough to explain material distortions to savings decisions of those still in employment, and the spending and investment decisions of retirees. Optimal decisions in this context require contorted retirement strategies that do not appear to be in anyone’s interest. Some possible remedies are suggested, which should include incorporating the value of the principal residence within the assets test. The chapter therefore illustrates the application of principled analysis to policy issues of this sort.

Labor supply responses to income tax free and bracket expansions

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Panayiota Lyssiotou ◽  
Elena Savva
Keyword(s):  
Labor Supply ◽  
Income Taxation ◽  
Foreign Workers ◽  
Tax Rates ◽  
Marginal Tax Rate ◽  
Men And Women ◽  
Content Type ◽  
Tax Rate ◽  
Marginal Tax Rates ◽  
Males And Females

PurposeAn important concern of economic policy analysis is how income taxes affect labor supply since this is crucial in assessing the efficiency costs of taxation and designing labor income taxation. The focus in the literature has been mostly to study the responses of high earners and women. The authors contribute to this literature by focusing more on how middle earners respond to financial incentives and whether the responses are different between men and women.Design/methodology/approachThe authors exploit substantial expansions in the level of individual income exempt from taxation and taxed at a lower marginal tax rate while the schedule of marginal tax rates remained the same. The authors adopt an empirical framework that is similar to Bosch and van der Klaauw (2012) and condition on the effects of other factors, such as inflows of foreign workers that may have affected the wages, participation and working hours of native males and females. The authors also conduct various sensitivity analyses to examine the robustness of the estimates.FindingsThe authors find robust evidence that the tax reforms increased the wages of medium and high educated married males and females significantly. They also had a positive impact on work participation that was more substantial for married women, especially the medium educated. The authors estimate significant positive own wage labor supply elasticities that are small and about the same for men and women when the authors condition on the labor outcome effects of inflows of EU and non-EU foreign workers, which changed the skill distribution of the economy and had a more significant impact on female labor outcomes. Smaller wage labor supply elasticities indicate lower disincentive effects and deadweight losses from the imposition of taxes and have implications on the design of optimal taxation of men and women.Originality/valuePrevious investigations of the labor supply responses of both men and women to a given policy change have been identified mostly by exploiting changes in joint income taxation and marginal tax rates. The authors exploit substantial expansions in the level of individual income exempt from taxation and taxed at a lower marginal tax rate while the schedule of marginal tax rates remained the same. The income effects of these reforms could be limited since the reduced marginal tax rates apply to only part of the income.

Solving the Muni Puzzle: Who Benefits from Tax Exemption of Government Debt?

2020 ◽  
pp. 109114212096037
Author(s):  
Konul Amrahova Riegel
Keyword(s):  
Random Coefficients ◽  
Municipal Bonds ◽  
Tax Rates ◽  
Marginal Tax Rate ◽  
Tax Rate ◽  
Asset Pricing Theory ◽  
Marginal Tax Rates ◽  
Tax Exempt ◽  
Pricing Theory ◽  
Unobserved Effects

I provide a new approach to measuring interest savings associated with issuing tax-exempt municipal bonds (munis) and present empirical evidence offering a solution to the long-standing “muni puzzle.” I show that the tax policy is effective and consistent with theory once I account for idiosyncratic issuer risk and investor preferences. I match tax-exempt munis to near-identical taxable munis issued by the same government at the same time with the same security characteristics to identify the slope of and the trend in implied marginal tax rates. Results of the random coefficients model, which mitigates issuer- and issuance-level unobserved effects, predict the slope of the marginal tax rate to be consistent with asset pricing theory and the tax profile of the typical muni investor. Findings also imply cyclicality over time and heterogeneity in implied marginal tax rates across issuers due to variations in idiosyncratic risk.

Estimates of Effective Marginal Tax Rates on Factor Incomes

1981 ◽  
Vol 54 (2) ◽  
pp. 191 ◽  
Author(s):  
Douglas H. Joines
Keyword(s):  
Tax Rates ◽  
Marginal Tax Rates

scholarly journals INCOME INEQUALITY, MOBILITY, AND THE WELFARE STATE: A POLITICAL ECONOMY MODEL

2012 ◽  
Vol 17 (6) ◽  
pp. 1198-1226 ◽  
Author(s):  
Luca Bossi ◽  
Gulcin Gumus
Keyword(s):  
Income Inequality ◽  
Welfare State ◽  
Social Insurance ◽  
Overlapping Generations ◽  
Tax Rates ◽  
Overlapping Generations Model ◽  
Public Programs ◽  
Transfer Payments ◽  
Set Up ◽  
The Welfare State

In this paper, we set up a three-period stochastic overlapping-generations model to analyze the implications of income inequality and mobility for demand for redistribution and social insurance. We model the size of two different public programs under the welfare state. We investigate bidimensional voting on the tax rates that determine the allocation of government revenues among transfer payments and old-age pensions. We show that the coalitions formed, the resulting political equilibria, and the demand for redistribution crucially depend on the level of income inequality and mobility.

EFFECTIVE MARGINAL TAX RATES UNDER THE FEDERAL INDIVIDUAL INCOME TAX: DEATH BY ONE THOUSAND PIN PRICKS?

1998 ◽  
Vol 51 (3) ◽  
pp. 553-564
Author(s):  
THOMAS A. BARTHOLD ◽  
THOMAS KOERNER ◽  
JOHN F. NAVRATIL
Keyword(s):  
Income Tax ◽  
Tax Rates ◽  
Individual Income ◽  
Marginal Tax Rates ◽  
Individual Income Tax
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