Browsing by Author "Nolan, Matt"

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Open Access
Did tax-transfer policy change New Zealand disposable income inequality between 1988 and 2013?
(Te Herenga Waka—Victoria University of Wellington, 2018) Nolan, Matt
This paper investigates the role tax and transfer policies changes played in the increase in disposable income inequality over the 1988-2013 period. Utilising the Household Economic Survey (HES) and a behavioural microsimulation model (Treasury’s TAXWELL-B) the relative contributions of tax policy and changes in various sociodemographic characteristics (age, highest educational attainment, and employment status) to the change in inequality are estimated. Tax and transfer policy changes are found to have had a major role in the increase in income inequality, accounting for around a third of the observed increase. Furthermore, non-policy related changes in the employment distribution also increased income inequality. However, increases in tertiary educational attainment and the proportion of workers in their prime earning years were both factors that were reducing income inequality over this same period. With these factors pushing in separate directions, this research also indicates that there are significant unobserved determinants of the rise in income inequality that cannot be attributed to the static role of tax-transfer policy, age, education, or employment status distributions.
Open Access
Horizontal and Vertical Equity in the New Zealand Tax-Transfer System: 1988-2013
(Te Herenga Waka—Victoria University of Wellington, 2018) Nolan, Matt
Between 1988 and 2013 New Zealand’s tax and welfare systems have experienced a significant period of change, with real benefit payments and tax rates both declining. When evaluating the perceived fairness of these reforms the focus has predominantly fallen on how average economic activity and income inequality changed. However, such evaluation is partial at best. In this paper I intend to extend the evaluation of tax-transfer policy change during this period by reframing the adjustment in the distribution of income (as proxied by the Gini coefficient) due to policy into “horizontal equity”, “vertical equity”, and “reranking” effects. This decomposition is achieved by applying the observed tax-transfers systems to two sets of pooled years of HES data (1988-1991 and 2011-2013), and then constructing appropriate concentration coefficients to analyse how the tax system transformed pre-tax and transfer family income into disposable family income. Such a decomposition allows us to discuss how the observed changes could be consistent with a change in perceptions of what is fair (eg the importance of treating equals the same vs the importance of redistributing income).
Open Access
Income Tax and Transfer Policy Changes in New Zealand: 1988-2013
(Te Herenga Waka—Victoria University of Wellington, 2018) Nolan, Matt
The goal of this paper is deliver an outline of the primary income tax and transfer policy settings in New Zealand between 1988 and 2013. The 1988-2013 period saw significant change in the tax and benefit systems, as the dual principles of a broad-base low rate tax system and increased targeting and work testing of benefits were implemented. By outlining the ways the tax and transfer structure changed in terms of thresholds, rates, and eligibility criteria this paper allows for structural modelling of tax and transfer payments. Furthermore, it provides a resource that lists policy changes with reference to the initial legislation which can be used to inform discussion of the tax-transfer changes of this period.
Open Access
Income-leisure preferences in New Zealand: 1988-2013
(Te Herenga Waka—Victoria University of Wellington, 2018) Nolan, Matt
This paper reports estimates for discrete choice labour supply models for New Zealand wage and salary earners for four periods: 1988/89-1992/93, 1993/94-1997/98, 2000/01-2007/08, and 2008/09-2012/13. Utilizing data from the Household Economic Survey (HES) between 1987 and 2013 the appropriate data are pooled and separated into five demographic groups (coupled men, coupled women, single men, single women, and single parents), allowing the estimation of five labour supply models for each year period. By calculating these preferences for varying time periods this provides the opportunity to evaluate how the preference for work, and therefore labour supply responses, had evolved during this time period. The main purpose of the exercise is to derive the labour supply responses of income units when faced with a change in disposable incomes. A discrete choice labour supply model uses microdata to estimate the preference over income and leisure time for each of these demographic groups, which can then be used to calculate changes in labour supply as disposable income opportunities at varying hours of work change.
Open Access
New Zealand Wage Equations: 1988-2013
(Te Herenga Waka—Victoria University of Wellington, 2018) Nolan, Matt
This paper reports estimates for wage equations for New Zealand wage and salary earners for four periods: 1987/88-1990/91, 1991/92-1997/98, 2000/01-2007/08, and 2008/09-2012/13. Utilizing data from the Household Economic Survey (HES) between 1987 and 2013 the appropriate data are pooled and separated into five demographic groups (coupled men, coupled women, single men, single women, and single parents), allowing the estimation of five wage equations for each year. Each of these 20 wage equations is tested for selection bias and estimation is adjusted using the Heckman correction where appropriate. Unlike prior estimates of the New Zealand wage equation, there is an allowance for variance in the selection equation. The main purpose of such an exercise is to impute wage rates for those who are not employed, information that is necessary for future estimates of the subgroups preference between leisure and wage income. However, these estimates are also used to discuss the evolution of the wage equation for varying demographic groups through time. This allows for a quantitative description of how the return to observed characteristics changed for demographic subgroups between 1988 and 2013.
Open Access
Taxation, user cost of capital and investment behaviour of New Zealand firms
(Te Herenga Waka—Victoria University of Wellington, 2021) Nolan, Gulnara; Nolan, Matt
This paper investigates the relationship between the user cost of capital (UCC) and the investment behaviour of New Zealand firms both in the short and long run. The key goal is to understand how policy changes that influence this cost of capital translate into changes in productive investment in New Zealand. Previous analysis on the UCC investment relationship in New Zealand focused on short term impacts on overall investment, and implied there was a limited investment response among capital heavy manufacturing firms. This was at odds with results from other countries (e.g. Belgium, France, Germany, UK). Our paper extends the New Zealand analysis in two ways: it re-estimates the prior results based on additional data and improved specification tests, and it also estimates an error-correction model that more consistently estimates the long-term impact of UCC changes on the capital stock. Our short-run findings are relatively consistent with prior New Zealand research. However, the long-run response of investment with respect to UCC changes (an elasticity of -1.4) is much larger than that implied in the prior research and previous estimates from macrodata. Furthermore, manufacturing firms also appeared to change their capital stock sizably from these estimates. The large response from our error correction estimates imply that the non-linearity of the dynamics of any investment response (e.g. due to lumpiness) needs to be accounted for when considering the long run consequences of any policy changes that affect the user cost of capital.