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Effective marginal tax rates and work disincentives

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:

Binh TRAN-NAM

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Chris EVANS

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Brian ANDREW
Brian is a visiting fellow at Charles Darwin University.
Current at April 2007
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