Tax Rates and Revenue Changes: Behavioural and Structural Factors

John Creedy and Norman Gemmell

No 11/05, Treasury Working Paper Series from New Zealand Treasury

Abstract: This paper examines the elasticity of tax revenue with respect to a marginal rate change, at both the individual and aggregate level. The roles of the elasticity of taxable income (the behavioural effect on taxable income of a tax rise) and the revenue elasticity (the structural effect on revenue of a change in taxable income) are highlighted. The revenue elasticity is the central concept in examining fiscal drag, but it has an additional role in the context of the revenue effects of tax changes when incomes respond to rate changes. Illustrations are provided using changes to the New Zealand income tax structure in the 2010 Budget. This reduced all marginal tax rates while leaving income thresholds unchanged.

Keywords: income tax revenue; elasticity of taxable income; revenue elasticity (search for similar items in EconPapers)
JEL-codes: H24 H26 H31 (search for similar items in EconPapers)
Pages: 20
Date: 2011-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:nzt:nztwps:11/05

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