Search results

The purpose of Volume 10 is to collect together original research papers on fiscal policy (taxes and transfers) and inequality. The first two chapters of Volume 10 address methodological issues in tax progressivity measurement. John Creedy examines the questions of to what extent can redistribution be achieved using a structure of consumption taxes with different rates and exemptions. The paper shows that progressivity is maximized when only one commodity group is taxed, the commodity group with the largest total expenditure elasticity. Generalizing this result, Creedy shows that the tax rate should fall as the total elasticity falls. Creedy illustrates his approach using data on Australia’s indirect tax system. In Chapter 2 Lea Achdut, Yasser Awad, and Jacques Silber propose an alternative way to define tax progressivity as a function of marginal, not average tax rates. Changes in tax progressivity indices are usually defined in terms of changes in average tax rates, while changes in tax policy are usually stated in terms of changes in marginal tax rates. Thus, this paper fills a gap between theory and applied work. They apply their approach to study the progressivity of Israel’s National Insurance tax system.

Research on Economic Inequality Volume 12 is the outgrowth of University of Alabama Poverty and Inequality Conference, May 22–25, 2003. The motivation for the conference was to honor John P. Formby upon his retirement. The conference, funded by the University, was designed to bring together three groups of people; first, some of the most recognized scholars in the field, second, current and former colleagues of John Formby’s working in this field, and third, Dr. Formby’s former Ph.D. and post-doctoral students. Seventeen papers were presented, 11 of which are authored or co-authored by Dr. Formby’s former students. Peter Lambert and Yoram Amiel also participated in the conference. Dan Slottje, John Creedy, Shlomo Yitzhaki and Quentin Wodon did not attend but contributed papers.

This paper examines the question of the extent to which redistribution can be achieved using a structure of consumption taxes with differential rates and exemptions. A local measure of progression, that of liability progression (equivalent to the revenue elasticity) is examined. Results are obtained for the Australian indirect tax structure. These are compared with structures in which only commodity groups with total expenditure elasticities greater than 1 are taxed. Comparisons are also made using equivalent variations, and inequality measures of a money metric welfare measure are reported.

The last 60 years have seen Australia and the United Kingdom diverge, both socially and economically. This paper considers how the widening social gap between the two countries is reflected by their respective redistributive systems. The analysis is based upon two microsimulation procedures – one static and the other dynamic – both of which are used to consider the probable distributional effects that would arise if elements of the Australian and UK tax and benefits systems were exchanged. The static microsimulation analysis presented suggests that comparisons based purely upon cross-sectional survey data are affected by population heterogeneity, which tend to overstate the redistributive effect of the Australian transfer system relative to the UK. Nevertheless, the dynamic microsimulations suggest that, on balance, the Australian transfer system is more redistributive than the UK system, and reflects a greater concern for redistribution between households. The UK system, in contrast, reflects a greater concern for redistribution through the life course.

Tax microsimulation models are based on large-scale cross-sectional survey data. Each individual or household has a sample weight provided by the statistical agency responsible for collecting the data. The typical starting point is to use weights that are inversely related to the probability of selecting the individual in a random sample, with some adjustment for non-response. It has become common for agencies, using “minimal” adjustments, to produce revised weights to ensure that, for example, the estimated population age/gender distributions match population totals obtained from other sources, in particular census data. Such calibration methods appear to be well known among survey statisticians, a highly influential paper being that by Deville and Särndal (1992).²

Recent studies have examined tax policy issues using labour supply models characterised by a discretised budget set. Microsimulation modelling using a discrete hours approach is probabilistic. This makes analysis of the distribution of income difficult as even for a small sample with a modest range of labour supply points the range of possible labour supply combinations over the sample is extremely large. This paper proposes a method of approximating measures of income distribution and compares the performance of this method to alternative approaches in a microsimulation context. In this approach a pseudo income distribution is constructed, which uses the probability of a particular labour supply value occurring (standardised by the population size) to refer to a particular position in the pseudo income distribution. This approach is compared to using an expected income level for each individual and to a simulated approach, in which labour supply values are drawn from each individual’s hours distribution and summary statistics of the distribution of income are calculated by taking the average over each set of draws. The paper shows that the outcomes of various distributional measures using the pseudo method converge quickly to their true values as the sample size increases. The expected income approach results in a less accurate approximation. To illustrate the method, we simulate the distributional implications of a tax reform using the Melbourne Institute Tax and Transfer Simulator.