Tax Policy Design and The Role of a Tax-Free Threshold

John Creedy: Nicolas Herault and Guyonne Kalb
Authors registered in the RePEc Author Service: John Creedy and Nicolas Hérault

No 1046, Department of Economics - Working Papers Series from The University of Melbourne

Abstract: This paper examines the role of the tax-free income tax threshold in a complex tax and transfer system consisting of a range of taxes and benefits, each with their own taper rates and thresholds. Considering a range of tax and benefit systems, particularly those having benefit taper rates whereby some benefits are received by income groups other than those at the bottom of the distribution, it is suggested that a tax-free threshold is not a necessary requirement to achieve redistribution. A policy change involving the elimination of the tax-free threshold in Australia and designed to achieve approximate revenue neutrality is examined using the Melbourne Institute Tax and Transfer Simulator. The results demonstrate that it is possible to eliminate the tax-free threshold under approximate overall revenue and distribution neutrality, but that labour supply incentives cannot be improved at the same time.

Pages: 28 pages
Date: 2008
New Economics Papers: this item is included in nep-pbe
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Citations: View citations in EconPapers (1)

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Working Paper: Tax Policy Design and the Role of a Tax-Free Threshold (2008)
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