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The Effects of Flattening the Effective Marginal Rate Structure in Australia: Policy Simulations Using the Melbourne Institute Tax and Transfer Simulator

Author

Listed:
  • John Creedy

    (Department of Economics, The University of Melbourne)

  • Guyonne Kalb

    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

  • Hsein Kew

    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

Abstract

This paper uses the Melbourne Institute Tax and Transfer Simulator (MITTS) to examine the effects of a reduction in the means-tested benefit taper, or withdrawal, rates in Australia to 30 per cent. That is, all taper rates of 50 per cent and 70 per cent in the 1998 system are reduced to 30 per cent, while leaving all basic benefit levels unchanged. This change is therefore expected to ‘flatten’ the tax structure by reducing the high marginal tax rates applying to those with relatively low incomes and increasing the marginal tax rates of medium incomes. Simulations in which all individuals are assumed to have an unchanged labour supply (using MITTS-A) are compared with behavioural simulations in which the majority of individuals are free to adjust the number of hours worked (using MITTS-B). The results reflect only the supply side of the labour market. The database used is the 1997 Income Distribution Survey (IDS), so that weekly incomes are based on the financial year 1997-98.

Suggested Citation

  • John Creedy & Guyonne Kalb & Hsein Kew, 2001. "The Effects of Flattening the Effective Marginal Rate Structure in Australia: Policy Simulations Using the Melbourne Institute Tax and Transfer Simulator," Melbourne Institute Working Paper Series wp2001n10, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    • Handle: RePEc:iae:iaewps:wp2001n10
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    File URL: http://melbourneinstitute.unimelb.edu.au/downloads/working_paper_series/wp2001n10.pdf
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    References listed on IDEAS

    as
    1. John Creedy, 1996. "Fiscal Policy and Social Welfare," Books, Edward Elgar Publishing, number 797, December.
    2. John Creedy & Guyonne Kalb & Hsein Kew, 2001. "The Melbourne Institute Tax and Transfer Simulator (MITTS)," Melbourne Institute Working Paper Series wp2001n16, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    3. John Creedy & Alan Duncan, 2002. "Behavioural Microsimulation with Labour Supply Responses," Journal of Economic Surveys, Wiley Blackwell, vol. 16(1), pages 1-39, February.
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    Cited by:

    1. Robert Breunig & Deborah A. Cobb‐Clark & Xiaodong Gong, 2008. "Improving the Modelling of Couples’ Labour Supply," The Economic Record, The Economic Society of Australia, vol. 84(267), pages 466-485, December.
    2. John Creedy & Guyonne Kalb & Hsein Kew, 2003. "Flattening the Effective Marginal Tax Rate Structure in Australia: Policy Simulations Using the Melbourne Institute Tax and Transfer Simulator," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 36(2), pages 156-172, June.
    3. Guyonne Kalb & Hsein Kew, 2002. "The Effect of a Reduced Allowance and Pension Taper Rate: Policy Simulations Using the Melbourne Institute Tax and Transfer Simulator," Melbourne Institute Working Paper Series wp2002n25, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    4. John Freebairn & Peter Dawkins, 2003. "Unemployment Policy: Lessons from Economic Analysis," Melbourne Institute Working Paper Series wp2003n22, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.

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