08 Apr 15 Understanding the economy-wide efficiency and incidence of major Australian taxes
On 7 April 2015 the Commonwealth Treasury released a working paper entitled Understanding the economy-wide efficiency and incidence of major Australian taxes.
The paper complements recent studies that compare the relative efficiency of different Australian taxes. The paper aims to contribute to a broader discussion about the structure of Australia’s tax system by estimating the welfare cost and identifying the economic incidence of marginal changes to the tax system. Estimates of the additional welfare cost of a marginal tax change (that is, the marginal excess burden) of major Australian taxes largely align with estimates reported in earlier Australian studies. Consistent with earlier studies, stamp duty on conveyances and the company income tax are the least efficient taxes (that is, they have relatively high marginal excess burdens), while the most efficient tax is a hypothetical broad-based land tax. The relative marginal excess burden of major Australian taxes is found to be robust to a wide range of model parameters. Finally, the paper shows that the incidence of major taxes is largely borne by workers through lower real wages caused by lower labour productivity.
The full text of the working paper is available here.