Browsing by Author "Gemmell, Norman"

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Open Access
Age-Income Profiles in New Zealand: New Estimates Based on Administrative Data
(Te Herenga Waka—Victoria University of Wellington, 2022) Alinaghi, Nazila; Creedy, John; Gemmell, Norman
This paper uses a new longitudinal dataset, containing information about the incomes of New Zealand individuals, to examine the form of cohort age-income profiles. A model of the variation in mean log-earnings with age, allowing for quadratic age and linear time effect, is estimated separately for males and females, along with a range of other demographic groups. An 'overtaking' property, whereby more recent cohorts have higher real income than older cohorts, at comparable ages, are found in all cases. Cubic profiles of the variation in the variance of log-income with age are also estimated. Examples of the projected changing distribution of income with age are given, for various cohorts aged 20 in 2020.
Open Access
Average Marginal Income Tax Rates in New Zealand, 1907-2009
(Te Herenga Waka—Victoria University of Wellington, 2012) Bandyopadhyay, Debasis; Barro, Robert; Couchman, Jeremy; Gemmell, Norman; Liao, Gordon; McAlister, Fiona
Estimates of marginal tax rates (MTRs) faced by individual economic agents, and for various aggregates of taxpayers, are important for economists testing behavioural responses to changes in those tax rates. This paper reports estimates of a number of personal marginal income tax rate measures for New Zealand since 1907, focusing mainly on the aggregate income-weighted average MTRs proposed by Barro and Sahasakul (1983, 1986) and Barro and Redlick (2011). The paper describes the methodology used to derive the various MTRs from original data on incomes and taxes from Statistics New Zealand Official Yearbooks (NZOYB), and discusses the resulting estimates.
Open Access
Can Automatic Tax Increases Pay for the Public Spending Effects of Population Ageing in New Zealand?
(Te Herenga Waka—Victoria University of Wellington, 2013) Creedy, John; Gemmell, Norman
This paper examines the extent to which projected aggregate tax revenue changes, association with population ageing over the next 50 years, can be expected to finance expected increases in social welfare expenditures. Projections from two separate models, dealing with social expenditures and income tax and GST revenue, are used. The results suggest that the modest projected required increase in the overall average tax rate over the next 50 years can be achieved automatically by adjusting income tax thresholds using an index of prices rather than wages. Based on evidence about the New Zealand tax system over the last 50 years, comparisons of average and marginal tax rates suggest that such an increase may be feasible and affordable. The paper discusses the range of considerations involved in deciding if this automatic increase in the aggregate average tax rate, via real fiscal drag of personal income taxes, is desirable compared with alternative fiscal policy changes.
Open Access
Chair in Public Finance Ten Year Review: 2011-2021
(Te Herenga Waka—Victoria University of Wellington, 2022) Gemmell, Norman
This working paper provides a review of the activities and achievements of the Chair in Public Finance over the 10 years from its establishment in 2011 until 2021. The review covers Research, Publications, Research Supervision and Training, Stakeholder Engagement and the Future of the Chair.
Open Access
Complementarity in Models of Public Finance and Endogenous Growth
(Te Herenga Waka—Victoria University of Wellington, 2014) Misch, Florian; Gemmell, Norman; Kneller, Richard
This paper considers the effects of complementarity in private production between private and public inputs on optimal fiscal policy under the objective of growth maximization. Using an endogenous growth model with public finance and CES technology, it derives two central results. First, it shows that with complementarity, growth-maximizing fiscal policy is also affected by preference parameters, the degree of complementarity and the stock-flow properties of public inputs to private production. Second, it shows that optimal public spending composition and taxation are interrelated and also depend on the efficiency of public spending under growth maximization. Both results contrast with standard findings in the literature that are typically based on the assumption of Cobb-Douglas technology, and have important lessons for policy settings.
Open Access
Constructing a Longitudinal Database for the Analysis of Individual Incomes in New Zealand
(Te Herenga Waka—Victoria University of Wellington, 2020) Alinaghi, Nazila; Creedy, John; Gemmell, Norman
This paper describes the construction of a unique longitudinal individual-level dataset that allows the dynamics of individual incomes in New Zealand to be examined. The data are obtained from the New Zealand Integrated Data Infrastructure, and cover approximately 393,874 taxpayers, for whom a range of information including, but not limited to, taxable income, gender, ethnicity, education level and location have been compiled. The availability of suitable data has previously been a constraint on income dynamics research. The present data construction exercise allows a more extensive analysis of individual income inequality and mobility than has previously been possible.
Open Access
Corporate Taxation and Productivity Catch-Up: Evidence from European firms
(Te Herenga Waka—Victoria University of Wellington, 2013) Gemmell, Norman; Kneller, Richard; McGowan, Danny; Sanz, Ismael; Sanz-Sanz, José F.
Firms that lie far behind the technological frontier have the most to gain from imitating the technology or management practices of others. That some firms converge relatively slowly to the productivity frontier suggests the existence of factors that cause them to underinvest in their productivity. In this paper we explore how far higher rates of corporate taxation affect firm productivity convergence by reducing the after tax returns to productivity enhancing investments for small firms. Using data for 11 European countries we find evidence for such an effect; productivity growth in small firms is slower the higher are corporate tax rates. Our results are robust to the use of instrumental variable and panel data techniques with quantitatively similar effects found from a natural experiment following the German tax reforms in 2001.
Open Access
Designing Direct Tax Reforms: Alternative Approaches
(Te Herenga Waka—Victoria University of Wellington, 2020) Alinaghi, Nazila; Creedy, John; Gemmell, Norman
How high should the top personal income tax rate be? Is there an `optimal' structure of tax rates and thresholds? Despite numerous value judgements being required to answer such questions, this paper suggests that 'rational policy analysis' principles can nevertheless be applied to support policy advice on these and other direct tax design questions. It is argued that the economic models thought suitable as the basis for tax analysis vary according to the precise ways in which the policy question is formulated; the underlying behavioural responses to taxation expected across the taxpaying population; the precise definitions of key variables such as income inequality; and the specification of policy objectives such as redistribution, revenue-raising or tax efficiency.
Open Access
Differential Income Growth of Individuals in New Zealand: Evidence from Administrative Data
(Te Herenga Waka—Victoria University of Wellington, 2022) Alinaghi, Nazila; Creedy, John; Gemmell, Norman
This paper uses administrative, longitudinal data on the New Zealand taxpayer population to examine the nature and extent of income mobility by individuals. It uses recently developed illustrative devices for mobility measures based on individuals' relative income growth over time, for periods of 1 to 15 years, during 2002 to 2017. Results highlight consistently higher (lower) relative income growth for those with initially lower (higher) incomes, reflecting strong 'regression to the mean' processes.
Open Access
The Distribution of Income and Fiscal Incidence by Age and Gender: Some Evidence from New Zealand
(Te Herenga Waka—Victoria University of Wellington, 2013) Aziz, Omar; Gemmell, Norman; Laws, Athene
This paper examines the age and gender dimensions of income distribution and fiscal incidence in New Zealand using Household Expenditure Survey (HES) data for 2010 and a non-behavioural micro-simulation model. Since many fiscal policies are likely to have quite different incidences across age groups and genders, and with population ageing changing the age and gender composition of the voting population in many countries, age/gender dimensions of fiscal incidence become increasingly relevant. While this single ‘age distribution snapshot’ cannot fully capture lifecycle incidences, it avoids the complex and uncertain assumptions implicit in the latter and is an important component of lifetime redistribution calculations. We explore alternative methods of intra-family allocation of resources including ‘unequal share’ assumptions based on recent research into how families allocate their spending. Our evidence, which in general is not highly sensitive to sharing assumptions, suggests a strong ‘life cycle’ aspect to fiscal incidence whereby net tax liabilities are low, and generally negative, at younger and older ages but positive during much of the ‘working age’ period. Women, on average, are found to have a systematically and persistently lower net fiscal liability than men, most pronounced at older ages when greater female longevity exercises a strong influence. Nevertheless, considerable heterogeneity of fiscal incidence for both men and women is observed with the distributions of various fiscal incidence measures showing substantial overlap.
Open Access
Do Couples Bunch More? Evidence from Partnered and Single Taxpayers in New Zealand
(Te Herenga Waka—Victoria University of Wellington, 2020) Alinaghi, Nazila; Creedy, John; Gemmell, Norman
Recent papers hypothesise that estimates of the elasticity of taxable income (ETI) for individuals may be biased where those individuals are taxed separately but are part of a couple family. This paper investigates that issue by applying the 'bunching at tax kinks' approach to estimate separate ETIs for partnered and single individuals. It shows that there are opportunities for, and constraints on, bunching specific to partnered individuals. Using administrative taxable income data for the New Zealand taxpayer population over the period, 2000 to 2017, individual taxpayers are matched to their partners using population census data. Results provide strong support for the hypotheses that ETIs are larger for individuals in couples than for single individuals, and for couples where both partners are located in the same income tax bracket. Self-employed individuals in couple families reveal especially large ETIs.
Restricted
Does the Composition of Government Expenditure Matter for Long-run GDP Levels?
(Te Herenga Waka—Victoria University of Wellington, 2014) Gemmell, Norman; Kneller, Richard; Sanz, Ismael
We examine the long-run GDP impacts of changes in total government expenditure and in the shares of different spending categories for a sample of OECD countries since the 1970s, taking account of methods of financing expenditure changes and possible endogenous relationships. We provide more systematic empirical evidence than available hitherto for OECD countries. Our results provide strong evidence that reallocating total spending towards infrastructure and education would be positive for long-run income levels. Increasing the share of social welfare spending (and away from all others pro-rata) may be associated with, at most, modestly lower long-run GDP levels.
Open Access
E-Commerce and its effect upon the Retail Industry and Government Revenue
(Te Herenga Waka—Victoria University of Wellington, 2013) Steel, Will; Daglish, Toby; Marriott, Lisa; Gemmell, Norman; Howell, Bronwyn
This paper was written by William Steel, Toby Daglish, Lisa Marriott, Norman Gemmell, Howell, Bronwyn and presented at a seminar on 20 March 2013, info here
Open Access
Economic Lessons for Tax Policy Advisers
(Te Herenga Waka—Victoria University of Wellington, 2021) Gemmell, Norman
This paper aims to provide tax policy advisers with some lessons from the general economics and public economics literatures relevant for the design of ‘good tax policy’ in relatively developed OECD economies such as New Zealand. It is aimed at those with limited or no background in economics (in general or in the economics of taxation in particular) who are tasked with understanding, devising or advising on, tax policy in practice. In addition to focusing on general lessons from the economics and tax theory literatures, it highlights some specific lessons for particular taxes, including personal income and indirect taxes. The paper is not intended as a guide for the design of specific tax policies, but rather provides some first-principles background, supported by examples, of how to think about setting tax policy in economically sensible ways (and avoid common pitfalls). More detailed background literature is also sign-posted.
Open Access
Effective Tax Rates and the User Cost of Capital when Interest Rates are Low
(Te Herenga Waka—Victoria University of Wellington, 2017) Creedy, John; Gemmell, Norman
Interest rates are a key component of both user cost and effective tax rate measures of company taxation, and each is regularly used in empirical tests of tax impacts on investment. However, it is shown that when interest rates are low the two measures are not monotonically related. Using a simulated sample of observations, this feature is found to generate perverse estimates of the effects of taxation on the investment plans of firms.
Open Access
The Effects of Penalty Information on Tax Compliance: Evidence from a New Zealand Field Experiment
(Te Herenga Waka—Victoria University of Wellington, 2017) Gemmell, Norman; Ratto, Marisa
The ‘standard’ Allingham-Sandmo-Yitzhaki (ASY) model of tax evasion predicts effects on compliance which depend on the perceived probability of detection, tax rate and penalty for evasion. Compliance effects of detection probabilities and tax rates have been extensively tested empirically, but penalty effects are rarely tested explicitly. This paper examines the effects of late payment penalties on tax compliance based on an experiment involving New Zealand goods and service tax (GST) ‘late payers’. Firstly, based on an ASY-type model of tax late payments in which the probability of enforcement, rather than detection, is central, we develop a number of testable hypotheses. Secondly, based on a field experiment involving a specific compliance intervention, we examine how taxpayers respond when given different penalty information. The experiment also allows us to consider differences between taxpayers’ stated intentions to comply and subsequently observed compliance. Results suggest that differences in penalty information given to taxpayers and reductions in penalty rates both affect taxpayers stated intentions to comply (pay overdue tax and penalties) as predicted. However, subsequently observed responses generally appear unresponsive to penalties. Nevertheless, various individual taxpayer characteristics are identifiable that affect both compliance intentions and actual behaviour.
Open Access
The Elasticity of Taxable Income of Individuals in Couples
(Te Herenga Waka—Victoria University of Wellington, 2018) Creedy, John; Gemmell, Norman
This paper examines the effect on the elasticity of taxable income for individuals in couples, where there is no income splitting for tax purposes but joint decisions are taken regarding taxable incomes. Two approaches are considered. First, the effects of minimising the total tax increase arising from a marginal rate increase are examines. Second, the paper considers the effects of joint utility maximisation.
Restricted
Estimating Firm-Level Effective Tax Rates and the User Cost of Capital in New Zealand
(Te Herenga Waka—Victoria University of Wellington, 2013) Fabling, Richard; Gemmell, Norman; Kneller, Richard; Sanderson, Lynda
Effective marginal tax rates can be very different from the statutory rate and vary across firms, reflecting such factors as the extent and nature of taxable deductions (losses, depreciation), asset and ownership structures, and debt/equity financing. We estimate firm-specific EMTRs and related user cost of capital (UCC) measures allowing for shareholder-level taxation using data for 2000-2010 from the Longitudinal Business Database. Examining distributions of various UCC measures we find substantial firm-level heterogeneity; systematic changes as a result of tax reforms between 2004 and 2011; and systematic differences between foreignowned and domestically-owned firms. Choices among alternative UCC measures make a difference to interpretations.
Open Access
Estimating Self-Employment Income-Gaps from Register and Survey Data: Evidence for New Zealand
(Te Herenga Waka—Victoria University of Wellington, 2018) Cabral, Ana Cinta G.; Gemmell, Norman
This paper provides estimates of the income-gap of the self-employed – defined as the proportion of undeclared to true income – in New Zealand using traces of expenditure to infer true income holdings following the approach of Pissarides and Weber (1989) and Feldman and Slemrod (2007). This uses the relationship between expenditure and income for the employed (with lower opportunities to evade) to infer the true income of the self-employed.We use a unique dataset – New Zealand’s Integrated Data Infrastructure (IDI) – that matches individual data including incomes and expenditures from the Household Economic Survey with register incomes declared to the tax administration. This has several advantages in our context. Firstly, register data minimises income measurement error by employed and self-employed as it does not rely on accurate recall by survey participants. Secondly, the approach allows us to measure evasion under different incentives for misreporting. We estimate that the self-employed underreport on average around 20% of their income (with a 95% confidence interval around 10-30%), and that the income-gap varies significantly by gender and region. Our results are also found to be highly robust to a range of sensitivity tests for measurement error.
Open Access
Explaining International Differences in the Prices of Tradables and Non-Tradables (with a New Zealand Perspective)
(Te Herenga Waka—Victoria University of Wellington, 2014) Falvey, Rodney E; Gemmell, Norman; Chang, Cherry; Zheng, Guanyu
The World Bank's International Comparison Program (ICP) data on national price levels for tradables and non-tradables (and goods compared to services) reveals that New Zealand has relatively high prices of both tradables and non-tradables when compared to a sample of over 40 OECD-Eurostat countries (Gemmell, 2013). The present paper seeks to explain both those observed international variations in non-tradables and tradables prices in general, and New Zealand's especially high prices in particular.