The Treasury today published two Working Papers on average marginal income tax rates and the economy-wide impacts of industry policy.
Average Marginal Income Tax Rates for New Zealand, 1907-2009, was written by Fiona McAlister, Debasis Bandyopadhyay, Robert Barro, Jeremy Couchman, Norman Gemmell and Gordon Liao. The paper states that estimates of marginal tax rates faced by individual economic agents, and for various aggregates of taxpayers, are important for economists testing behavioral responses to changes in those tax rates.
The aggregate marginal income tax rate (AMTR) evidence outlined in the paper shows the nature of the tax schedule has changed dramatically through the period, and the contribution of income weighting from different income classes of taxpayers has also played a role. AMTR rates varied substantially over the whole 1907-2009 period, but with a generally increasing trend. The data also confirm the small but sustained rise in the ATMR (from 26% in 2000 to 31% in 2008) following the increase in the top rate of personal income tax from 33% to 39% in 2000, and the impact of fiscal drag thereafter.
Economy-Wide Impacts of Industry Policy by Anita King demonstrates how the economy-wide effects of an economic development or industry policy can be estimated using computable general equilibrium (CGE) modelling. It applies CGE modelling to four industry policy scenarios for the New Zealand economy to illustrate how it can be used and the range of results that such models can provide.
The scenarios used are: the effect of a 10% increase in demand for exports; comparing the effect of a 10% productivity improvement in large but low value-added sectors to the same improvement in small but high value-added sectors; a 15% R&D tax credit; and a 10% improvement in international freight productivity.
Results of the modelling include some results that are initially counter-intuitive, and show the importance of considering the economy-wide effects of a policy change rather than just the effects on the directly affected sector.
The views, opinions, findings, and conclusions or recommendations expressed in Treasury Working Papers are strictly those of the authors and do necessarily reflect the views of the Treasury.
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