Revenue-maximising tax rates and elasticities of taxable income inNew Zealand

John Creedy and Norman Gemmell

New Zealand Economic Papers, 2015, vol. 49, issue 2, 189-206

Abstract: The empirical literature on the elasticity of taxable income (ETI) sometimes questions whether estimated values are consistent with being on the revenue-increasing section of the Laffer curve, usually in the context of a single rate tax system or for top marginal rates. This paper obtains expressions for this 'Laffer-maximum' or revenue-maximising ETI which can be applied to any tax rate in a multi-rate system. For the New Zealand income tax system in 2010, it is found that a wide range of revenue-maximising ETI values can be expected across individual taxpayers, across tax brackets and in aggregate. The paper also simulates the effect of multi-rate tax reforms on these revenue-maximising ETIs.

Date: 2015
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DOI: 10.1080/00779954.2014.893860

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