Raise Top Tax Rates, Not the GST

14 Pages Posted: 9 Jul 2013 Last revised: 19 Mar 2015

See all articles by Patricia F. Apps

Patricia F. Apps

The University of Sydney Law School; IZA Institute of Labor Economics

Ray Rees

Ludwig Maximilian University of Munich - Faculty of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: July 8, 2013

Abstract

This paper argues that increasing the GST, by raising the rate above 10 per cent while retaining the current tax base, or by broadening the base to include all forms of consumption expenditure, does not offer a solution to the widely perceived problems of the Australian tax system. The direct, regressive effects of such GST changes are well understood. We argue here that when we also take into account the effects of the measures, generally accepted as a corollary of the policy, that are required to compensate low income households, not only will the regressive distributional effects be exacerbated, but serious losses of economic efficiency will also result. Our analysis supports the proposition that raising tax rates across top incomes would be a far more equitable and less distortionary reform than raising the GST.

Keywords: income taxation, consumption taxation, labour supply, inequality, efficiency

JEL Classification: H21, H24, H31, D91, J22

Suggested Citation

Apps, Patricia F. and Rees, Ray, Raise Top Tax Rates, Not the GST (July 8, 2013). Australian Tax Forum, Vol. 28, No. 3, pp. 679-693, 2013; Sydney Law School Research Paper No. 13/45. Available at SSRN: https://ssrn.com/abstract=2291299 or http://dx.doi.org/10.2139/ssrn.2291299

Patricia F. Apps (Contact Author)

The University of Sydney Law School ( email )

Faculty of Law, New Law Building F10
The University of Sydney
Sydney, NSW 2006
Australia
+61 2 9351 0241 (Phone)
+61 2 9351 0200 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Ray Rees

Ludwig Maximilian University of Munich - Faculty of Economics ( email )

Munich, D-80539
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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