School of Accounting and Commercial Law – Te Kura Kaute, Ture Tauhokohoko: Chair in Public Finance: Working Paper Series

Permanent URI for this collectionhttps://ir.wgtn.ac.nz/handle/123456789/21218

The Chair in Public Finance is located in the school of School of Accounting and Commercial Law. The aims of the Chair in Public Finance are to build up expertise in the area of public finance (broadly defined) and to promote research, debate, policy analysis and advice on public finance matters. For further information about the chair please refer to the Chair in Public Finance website.

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Open Access
Income Mobility in New Zealand 2007–2020: Combining Household Survey and Census Data
(Te Herenga Waka—Victoria University of Wellington, 2022) Creedy, John; Quy, Ta
This paper describes income mobility patterns in New Zealand over the short to medium term. It uses a special dataset which tracks Household Labour Force Surveys over the period from 2007 to 2020, using 2013 census data. The measure of income is total family taxable income per adult equivalent person. The income unit is the individual. Over the period 2007-2020, around half of the New Zealand working-age population stayed in the same income quintile over four years, and 40% over seven to eight years. Of those initially in the bottom quintile, 57% remained in that quintile over four years, while 68% of those initially in the top quintile remained in that quintile four years later. Of those who initially had incomes less than 50% of the median income per adult equivalent person, about half remained in that category after six to seven years. Income mobility for working-age New Zealanders is broadly similar to other OECD countries.
Open Access
Exploring A New Class of Inequality Measures and Associated Value Judgements: Gini and Fibonacci-Type Sequences
(Te Herenga Waka—Victoria University of Wellington, 2022) Creedy, John; Subramanian, S.
This paper explores a single-parameter generalization of the Gini inequality measure. Taking the starting point to be the Borda-type social welfare function, which is known to generate the standard Gini measure, in which incomes (in ascending order) are weighted by their inverse rank, the generalisation uses a class of non-linear functions. These are based on the so-called ‘metallic sequences’ of number theory, of which the Fibonacci sequence is the best-known. The value judgements implicit in the measures are explored in detail. Comparisons with other well-known Gini measures, along with the Atkinson measure, are made. These are examined within the context of the famous ‘leaky bucket’ thought experiment, which concerns the maximum leak that a judge is prepared to tolerate, when making an income transfer from a richer to a poorer person. Inequality aversion is thus viewed in terms of being an increasing function of the leakage that is regarded as acceptable.
Open Access
Measuring Positional Changes within the New Zealand Income Distribution: Evidence from Administrative Data
(Te Herenga Waka—Victoria University of Wellington, 2022) Alinaghi, Nazila; Creedy, John; Gemmell, Norman
This paper use administrative, longitudinal data on the New Zealand taxpayer population to examine the nature and extent of positional changes within the income distribution by individuals. It uses recently developed devices for illustrating re-ranking over time, for periods of 1 to 15 years, during 2002 to 2017. The results, for a range of population groups, highlight the fact that there is a high degree of re-ranking by individuals within the income distribution. After 15 years, re-ranking of individuals' incomes represent around 30 to 45 per cent of the maximum re-ranking possible.
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
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
Summary Measures of Equalising Income Mobility Based on ‘Three Is of Mobility’ Curves
(Te Herenga Waka—Victoria University of Wellington, 2022) Creedy, John; Gemmell, Norman
This paper extends the ‘Three Is of Mobility (TIM) Curve’ framework, developed by Creedy and Gemmell (2019) to produce summary measures of equalising mobility between two periods, based on areas within the diagram. Two concepts of equalising mobility are considered. The first involves equalisation of incomes in the second period, achieved by a compression of incomes and no re-ranking. The second concept involves maximum redistribution in terms of the inequality of incomes measured over the two periods combined. This involves differential income growth and maximum re-ranking, whereby second period incomes are ‘swapped’: the richest person becomes the poorest, and so on. The measures are illustrated using a large sample of taxpayers’ incomes in New Zealand.
Open Access
Mortality Comparisons 'At a Glance': A Mortality Concentration Curve and Decomposition Analysis for India
(Te Herenga Waka—Victoria University of Wellington, 2022) Creedy, John; Subramanian, S.
This paper uses the concept of the M-Curve, which plots the cumulative proportion of deaths against the corresponding cumulative proportion of the population (arranged in ascending order of age), and associated measures, to examine mortality experience in India. A feature of the M-curve is that it can be combined with an explicit value judgement (an aversion to early deaths) in order to make welfare-loss comparisons. Empirical comparisons over time, and between regions and genders, are made. Furthermore, in order to provide additional perspective, selective results for the UK and New Zealand are reported. It is also shown how the M-curve concept can be used to separate the contributions to overall mortality of changes over time (or differences between population groups) to the population age distribution and age-specific mortality rates.
Open Access
Income Inequality and the Accounting Period in New Zealand: Evidence from Administrative Data
(Te Herenga Waka—Victoria University of Wellington, 2022) Alinaghi, Nazila; Creedy, John; Gemmell, Norman
This paper examines the effect on taxable income inequality among New Zealand individuals of extending the accounting period beyond a single year. Typically, inequality comparisons are based on a single year accounting period and involve cross-sectional measures, ignoring the role of income dynamics. The paper uses a specially constructed dataset of the New Zealand taxpayer population since 2000. Results are reported for the population as a whole and for groups distinguished by age, gender, ethnicity and educational qualifications.
Open Access
Inter-Decile Income Movements 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 provides an empirical description of the income mobility of individual incomes in New Zealand over the period 2002 to 2017, using information from transition matrices. These capture movements of individual taxpayers between deciles of the income distribution over periods ranging from one to fifteen years. Transitions for sample decompositions by age, gender, ethnicity and education level are also explored. Though 1-year transitions indicate considerable inertia or stability, a relatively high degree of movement between deciles is observed across most of the distribution over longer periods. Different age, gender, ethnicity and educational qualification decompositions reveal remarkably similar patterns of inter-decile movement.
Open Access
Mortality Comparisons and Age: a New Mortality Curve
(Te Herenga Waka—Victoria University of Wellington, 2022) Creedy, John; Subramanian, S.
This paper introduces a new mortality curve to illustrate and measure mortality and its relation to age. The curve draws on the ‘Lorenz-Gini’ framework of income-inequality measurement. The paper advances the cause of a ‘mortality curve’ analogous to the Lorenz curve, and a ‘mortality-inefficiency’ measure analogous to the Gini coefficient of inequality. The idea is to supplement the Crude Death Rate (CDR) with a mortality-inefficiency measure in a composite index of mortality which attends to both the mean and the dispersion of an age-distribution of deaths.
Open Access
The Performance Based Research Fund in NZ: Taking Stock and Looking Forward
(Te Herenga Waka—Victoria University of Wellington, 2022) Buckle, Robert A; Creedy, John
This paper draws on earlier research by the authors to review changes in research quality in New Zealand universities since the introduction of the Performance Based Research Fund (PBRF) in 2003. The changes are related closely to the incentives created by the scheme, and are associated with the nature of the considerable staff turnover that has taken place over the 15-year period during which it has operated. The precise funding formulae used, relating to the research funds attached to different discipline groups and quality categories, involve political judgements and are not considered here. However, a review of the changed nature of universities and the details of the evaluation process suggest that substantial simplifications could usefully be made while maintaining incentives that are at the heart of any PBRF.
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
A Longitudinal Database for the Analysis of Family 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 family-level dataset that allows the dynamics of family incomes in New Zealand to be examined over the period, 2000 to 2017. The data are obtained from the New Zealand Integrated Data Infrastructure, requiring a complex linking exercise to be carried out. The dataset provides a basic resource for economic analyses of income inequality in which substantial attention is paid to the accounting period over which income is measured, and the nature of income changes over calendar time for different date-of-birth cohorts.
Open Access
An Evaluation of Metrics Used by the Performance-Based Research Fund Process in New Zealand
(Te Herenga Waka—Victoria University of Wellington, 2017) Buckle, Robert A; Creedy, John
The New Zealand Performance-based Research Fund (PBRF) applies a unique set of metrics to assess researchers and rank disciplines and universities. The process involves giving a ‘raw score’ to individual researchers and then assigning them to one of four Quality Evaluation Categories (QECs), used to derive Average Quality Scores (AQS). This paper evaluates the properties of these metrics and argues that QEC thresholds influence the final distribution of assessments. The paper also demonstrates that the derivation of AQSs depends on the weights assigned to each QEC and the distribution of portfolios. The method used to determine the raw scores also has an independent effect on the distribution of scores. The number of researchers included in evaluations also influences the rankings. The paper compares how research rankings of New Zealand universities would vary if alternative summary measures, based on the raw scores rather than QECs, were used to evaluate peformance.
Restricted
The Redistributive Effects of a Minimum Wage Increase in New Zealand. A Microsimulation Analysis
(Te Herenga Waka—Victoria University of Wellington, 2019) Alinaghi, Nazila; Creedy, John; Gemmell, Norman
This paper examines the potential effects on inequality and poverty of a minimum wage increase, based on a microsimulation model which allows for labour supply responses. It then compares these outcomes with an alternative, commonly used policy of raising government welfare benefits, similarly aimed at poverty or inequality reduction. Results suggested that, due to the composition of household incomes, a policy of increasing the minimum wage appears to have a relatively small effect on the inequality of income per adult equivalent person, using several inequality indices. The minimum wage policy is not particularly well targeted at its objective, largely due to many low-wage earners being secondary earners in higher-income households, while many low-income households have no wage earners at all. However, an ‘equivalent’ policy of raising welfare benefits does not clearly demonstrate ‘target superiority’. Results suggest that while raising benefits has a greater ability to reduce most poverty measures examined, substantially smaller inequality reductions are found to be associated with benefit increases compared to a minimum wage increase. Thus benefit increases represent a relatively effective strategy for poverty reduction, mainly by targeting sole parents, but (like minimum wages) are also relatively ineffective if inequality reduction is the objective.
Open Access
Income Inequality in New Zealand: Why Conventional Estimates are Misleading
(Te Herenga Waka—Victoria University of Wellington, 2018) Creedy, John; Gemmell, Norman
Considerable attention is currently being paid to establishing the extent of inequality in New Zealand and whether it has risen in recent years. This paper offers some insights into the inequality measures and interpretations that commonly feature in those debates. These typically relate to cross-sectional inequality, such as annual Gini coefficients for various income definitions, or comparisons of income growth rates across income deciles. But failure to take into account the longitudinal dimension of inequality can lead to misinterpretations of inequality data and measures. The paper shows that examining longitudinal income data for the same individuals over time strongly contradicts cross-sectional inequality evidence. For example, some recent cross-sectional inequality measures suggest that the incomes of initially low-income households grew at slower rates than those with initially higher-incomes. This has been interpreted as the poorest earners being ‘left behind’. But recent longitudinal data, at least for individuals, reveals evidence of much faster-than-average growth among initially lower, compared to higher, income earners. Thus, ‘regression to the mean’ is a dominant feature of the longitudinal data.
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
Illustrating Income Mobility: Two New Measures*
(Te Herenga Waka—Victoria University of Wellington, 2017) Creedy, John; Gemmell, Norman
Jenkins and Lambert (1997) demonstrated that a number of measures of poverty could be combined and compared using the "Three Is of Poverty" (TIP) curve; the ‘three Is’ being the incidence, intensity and inequality of poverty. This paper takes the insights from the TIP curve and applies them to income growth based measures of mobility, proposing a "Three Is of Mobility", or TIM, curve. Similar analysis is then applied to re-ranking measures of mobility to yield a re-ranking ratio (RRR) curve. Illustrations are provided using income data from random samples of New Zealand income taxpayers over the period 1998 to 2010. It is argued that both curves represent simple graphical devices that nevertheless conveniently illustrate the "Three Is" properties of income mobility.
Open Access
Distributional Comparisons Using the Gini Inequality Measure
(Te Herenga Waka—Victoria University of Wellington, 2021) Creedy, John
This paper is aimed at undergraduate and graduate economics students, and public sector economists, who are interested in inequality measurement. It examines the use of the Gini inequality measure to compare income distributions. The implicit distributional value judgements are made explicit, via the use of a particular form of Social Welfare Function. Emphasis is given to the interpretation of changes in inequality.
Open Access
Golden Years – Understanding the New Zealand Superannuation Fund
(Te Herenga Waka—Victoria University of Wellington, 2021) Bell, Matthew
The New Zealand Superannuation Fund (NZSF) is one of New Zealand’s largest publicly-owned financial assets. Its primary purpose is to act as an inter-generational tax smoothing vehicle, in order to assist future taxpayers cover the cost of providing the public pension, New Zealand Superannuation (NZS). New Zealand’s ageing population structure will, in the absence of any changes to pension settings, lead to a significant lift in NZS expenditure as a percentage of gross domestic product (GDP) over the next few decades. The paper includes an explanation of the reasons behind why this demographic change is occurring and will continue to unfold over the foreseeable future. The paper contributes a comprehensive analysis of the NZSF’s role in New Zealand’s public finances. This includes descriptions and modelling of NZS and the NZSF, explanations of the mathematical relationships behind the NZSF’s legislated contribution rate formula, and a brief history of the NZSF. Future outcomes for the NZSF’s size and role in helping to fund NZS, depending on scenarios that vary the evolution of NZS relative to GDP, are illustrated and explained. How and why projections related to the NZSF have changed over time is also analysed and explained, including what factors have had the most influence on these changes. The paper does not comment on the merits of policy decisions that have been made in regard to either NZS or the NZSF. That is not the paper’s purpose, outside of covering any aspects of these in regard to how the NZSF has evolved or may evolve in future, or how its logic operates.