The Contribution of Effective Marginal Tax Rates to Work Disincentives
Australian Tax Forum, Vol 22 No 3, pp 117-135, 2007
18 Pages Posted: 14 Dec 2020
Date Written: November 9, 2020
Abstract
This paper examines the problems faced by low and middle income earners as,a result of high effective marginal tax rates ('EMTRs'). It is primarily concerned with the negative impact of these high EMTRs on workforce participation. The paper,explores some of the reasons for high EMTRs, caused by the poor meshing of the,tax and transfer systems, and the implications of those high EMTRs. It identifies the benefits that could be achieved through reform of the tax system, but recognises that the EMTR problem cannot be resolved without a more fundamental reform of both the,tax and the welfare systems. This need for fundamental reform is illustrated through the plight of the single parent forced into the workforce as a result of recent changes to social security arrangements. The paper finally identifies an alternative approach, extensively used in some provinces of Canada, that may represent a more positive,way forward
Keywords: Marginal tax rates, Work Discentives, tax system, EMTR, taxation
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