Understanding Changes in Progressivity and Redistributive Effects: The Role of Tax-Transfer Policies and Labour Supply Decisions

21 Pages Posted: 25 Oct 2013

See all articles by Nicolas Herault

Nicolas Herault

University of Melbourne - Melbourne Institute: Applied Economic & Social Research

Francisco Azpitarte

Melbourne Institute of Applied Economic and Social Research & Brotherhood of St Laurence

Date Written: October 1, 2013

Abstract

In this paper we propose a framework to study changes in the redistributive consequences of income taxes and transfers. In contrast with previous approaches the new method allows decomposition of the change in the redistributive impact into four components: the immediate effect of changes in the tax-transfer system in the absence of labour supply responses; the effect of labour supply changes induced by changes in the tax-transfer system; the effect of all other labour supply changes; and a residual capturing the variation not explained by the previous factors. We illustrate the use of our decomposition method by analysing the changes in the redistributive impact of the tax and transfer system in Australia between 1999 and 2007. We find that labour supply changes, and in particular the increase in employment rates over the period, explain to a large extent the observed reduction in the redistributive effect of the tax-transfer system. A sizable part of these labour supply changes were found to be direct responses to tax-transfer reforms. Interestingly, we find that tax reforms were not responsible for the observed reduction in tax progressivity.

Keywords: Income, redistributive effect, labour supply, taxes and transfers

JEL Classification: H23, J22, D31

Suggested Citation

Herault, Nicolas and Azpitarte, Francisco, Understanding Changes in Progressivity and Redistributive Effects: The Role of Tax-Transfer Policies and Labour Supply Decisions (October 1, 2013). Melbourne Institute Working Paper No. 33/13, Available at SSRN: https://ssrn.com/abstract=2344509 or http://dx.doi.org/10.2139/ssrn.2344509

Nicolas Herault (Contact Author)

University of Melbourne - Melbourne Institute: Applied Economic & Social Research ( email )

Level 5, FBE Building, 111 Barry Street
Parkville, Victoria 3010
Australia

HOME PAGE: http://www.findanexpert.unimelb.edu.au/researcher/person125238.html

Francisco Azpitarte

Melbourne Institute of Applied Economic and Social Research & Brotherhood of St Laurence ( email )

Level 5, FBE Building, 111 Barry Street
111 Barry Street, University of Melbourne
Melbourne, 3010
+61 3 9035 3414 (Phone)
+61 3 8344 2111 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
51
Abstract Views
405
rank
418,680
PlumX Metrics