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Effective marginal tax rates and work disincentives

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Published on 01 Jul 07 by "AUSTRALIAN TAX FORUM" JOURNAL ARTICLE

This paper examines the problems faced by low and middle income earners as a result of high effective marginal tax rates (‘EMTRs’). It is primarily concerned with the negative impact of these high EMTRs on workforce participation. The paper explores some of the reasons for high EMTRs, caused by the poor meshing of the tax and transfer systems, and the implications of those high EMTRs. It identifies the benefits that could be achieved through reform of the tax system, but recognises that the EMTR problem cannot be resolved without a more fundamental reform of both the tax and the welfare systems. This need for fundamental reform is illustrated through the plight of the single parent forced into the workforce as a result of recent changes to social security arrangements. The paper finally identifies an alternative approach, extensively used in some provinces of Canada, that may represent a more positive way forward.

Author profiles

Brian ANDREW
Brian is a visiting fellow at Charles Darwin University.
Current at April 2007
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Prof Christopher Evans
Chris is a Professor, School of Taxation & Business Law, UNSW Sydney, Extraordinary Professor, Department of Taxation, University of Pretoria, and International Research Fellow, Centre for Business Taxation, University of Oxford. - Current at 27 October 2020
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Binh Tran-Nam
Binh is a Professor, School of Taxation & Business Law, UNSW Australia and RMIT Asia Graduate Centre, RMIT University Vietnam, and International Fellow, Tax Administration Research Centre, Exeter University-Institute for Fiscal Studies. - Current at 03 November 2016
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