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Food Expenditure and GST in New Zealand

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Abstract

This paper has two main aims. First, the poor targeting of a policy of zero-rating food in a goods and services tax (GST) is illustrated in a simple model where the revenue lost from zero-rating food is instead devoted to a universal transfer payment, with a larger effect on progressivity. Second, the paper investigates the welfare effects on New Zealand households of zero-rating food. The detailed effects, for a range of household types, are then investigated using Household Economic Survey data. Demand responses to consumer price changes are estimated and welfare changes, in terms of equivalent variations, are obtained. Comparisons are made across ‘clusters’, consisting of groups of households with similar characteristics. The reform is seen to produce a very small amount of progressivity in the GST, with redistribution from richer households without children to poorer households with children, and older households.

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  • Christopher Ball & John Creedy & Michael Ryan, 2014. "Food Expenditure and GST in New Zealand," Treasury Working Paper Series 14/07, New Zealand Treasury.
    • Handle: RePEc:nzt:nztwps:14/07
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    File URL: https://treasury.govt.nz/sites/default/files/2014-04/twp14-07.pdf
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    1. Michael Keen, 2013. "The Anatomy of the Vat," National Tax Journal, National Tax Association;National Tax Journal, vol. 66(2), pages 423-446, June.
    2. Christopher Ball & Michael Ryan, 2014. "New Zealand households and the 2008/09 recession," New Zealand Economic Papers, Taylor & Francis Journals, vol. 48(1), pages 21-39, April.
    3. John Creedy, 2001. "Indirect tax reform and the role of exemptions," Fiscal Studies, Institute for Fiscal Studies, vol. 22(4), pages 457-486., December.
    4. John Creedy, 1998. "Are Consumption Taxes Regressive?," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 31(2), pages 107-116, June.
    5. repec:bla:ausecp:v:37:y:1998:i:2:p:137-51 is not listed on IDEAS
    6. John Creedy & Norman Gemmell, 2004. "The Built‐In Flexibility Of Income And Consumption Taxes In New Zealand," Australian Economic Papers, Wiley Blackwell, vol. 43(4), pages 459-474, December.
    7. John Creedy & Cath Sleeman, 2006. "The Distributional Effects of Indirect Taxes," Books, Edward Elgar Publishing, number 12558.
    8. John Creedy, 2002. "The GST and Vertical, Horizontal and Reranking Effects of Indirect Taxation in Australia," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 35(4), pages 380-390, December.
    9. Nicholas Stern, 1990. "Uniformity Versus Selectivity In Indirect Taxation," Economics and Politics, Wiley Blackwell, vol. 2(1), pages 83-108, March.
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    Cited by:

    1. John Creedy & Penny Mok, 2018. "The marginal welfare cost of personal income taxation in New Zealand," New Zealand Economic Papers, Taylor & Francis Journals, vol. 52(3), pages 323-338, September.
    2. Thomas, Alastair, 2015. "The Distributional Effects of Consumption Taxes in New Zealand," Working Paper Series 19331, Victoria University of Wellington, Chair in Public Finance.
    3. Thomas, Alastair, 2015. "The Distributional Effects of Consumption Taxes in New Zealand," Working Paper Series 4668, Victoria University of Wellington, Chair in Public Finance.
    4. Thomas, Alastair, 2019. "Who Would Win from a Multi-rate GST in New Zealand: Evidence from a QUAIDS Model," Working Paper Series 8127, Victoria University of Wellington, Chair in Public Finance.
    5. John Creedy & Penny Mok, 2018. "The marginal welfare cost of personal income taxation in New Zealand," New Zealand Economic Papers, Taylor & Francis Journals, vol. 52(3), pages 323-338, September.

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    More about this item

    JEL classification:

    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory

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