34 results for Creedy, John, Scholarly text

Measuring RevenueMaximising Elasticities of Taxable Income: Evidence for the US Income Tax
Creedy, John; Gemmell, Norman (2014)
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Victoria University of WellingtonA recent review of empirical estimates of the elasticity of taxable income (ETI) concluded that ‘the US marginal top rate is far from the top of the Laffer curve’ (Saez et al, 2012, p.42). This paper provides a detailed examination of the analysis underlying this conclusion, and considers whether other tax rates in the US income tax system are on the ‘right’ side of the Laffer curve. Conceptual expressions for ‘Laffermaximum’ or revenuemaximizing ETIs, based on readily observable parameters, are presented for individuals and groups of taxpayers in a multirate income tax system. Applying these to the US income tax in 2005, with its complex effective marginal rate structure, demonstrates that a wide range of revenuemaximizing ETI values can be expected for individual taxpayers within and across tax brackets, and in aggregate. For many taxpayers these revenuemaximizing ETIs are well within the range of empirically estimated elasticities.
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A note on InequalityPreserving Distributional Changes
Creedy, John (2014)
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Victoria University of WellingtonThis note considers the problem of distributing a fixed amount of money (‘income’) among a given number of people, such that inequality (measured by either the Gini or Atkinson measure) takes a specified value. It is well known that simultaneous equations admit of many solutions where the number of variables exceeds that of equations (constraints). However, the approach examines cases where there are just one or two degrees of freedom, clarifying the resulting range of distributions. The properties of simultaneous disequalising and equalising transfers are discussed.
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Reflections on the Report by the Tax Working Group presented by Professor John Creedy
Creedy, John (2010)
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Victoria University of WellingtonProfessor John Creedy presents his reflections on the Tax Working Group Report (Report available here.) John presents his findings to a Wellington audience on Tuesday 23 February and in Auckland on Thursday 25 February.
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Income redistribution and changes in inequality in New Zealand from 2007 to 2011: Alternative distributions and value judgements
Creedy, John; Eedrah, Jesse (2014)
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Victoria University of WellingtonThis paper illustrates the effects of using different distributions and summary measures, using New Zealand data for the period 2007 to 2011. Using an annual accounting period, alternative welfare metrics and units of analysis are investigated. In addition, the sensitivity to assumptions about economies of scale within households is examined, and changes in inequality are decomposed into those arising from population and tax structure changes. When considering the period 2007 to 2010 all measures agree that inequality fell, although the extent of the reduction varies. For the period 2007 to 2011 (after the tax reforms of 2010) the answer to the question of whether inequality in New Zealand has risen or fallen depends crucially on the combination of welfare metric, income unit, adult equivalent scale and inequality measure used. In empirical studies it is therefore important to explore a wide range of alternative approaches, providing information for readers to make their own judgements.
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Interpreting Inequality Measures and Changes in Inequality
Creedy, John (2014)
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Victoria University of WellingtonThis paper explores, in the context of the Atkinson inequality measure, attempts to make interpretations of orders of magnitude transparent. One suggestion is that the analogy of sharing a cake among a very small number of people provides a useful intuitive description for people who want some idea of what an inequality measure ‘actually means’. In contrast with the Gini measure, for which a simple ‘cakesharing’ result is available, the Atkinson measure requires a nonlinear equation to be solved. Comparisons of ‘excess shares’ (the share obtained by the richer person in excess of the arithmetic mean) for a range of assumptions are provided. The implications for the ‘leaky bucket’ experiments are also examined. An additional approach is to obtain the ‘pivotal income’, above which a small increase for any individual increases inequality. The properties of this measure for the Atkinson index are also explored.
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The Welfare Gain from a New Good: An Introduction
Creedy, John (2015)
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Victoria University of WellingtonThis note provides an elementary introduction to the measurement of welfare gains from the introduction of a new good, based on the concept of the ‘virtual price’ and standard expressions for welfare changes arising from price changes.
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Pensions, Savings and Housing: A Lifecycle Framework with Policy Simulations
Creedy, John; Gemmell, Norman; Scobie, Grant (2015)
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Victoria University of WellingtonThe objective of the paper is to explore the saving and consumption responses of a representative household to a range of policy interventions such as changes in taxes and pension settings. To achieve this, it develops a twoperiod lifecycle model. The representative household maximises lifetime utility through its choice of optimal levels of consumption, housing and saving. A key feature of the approach is modelling the consumption of housing services as a separate good in retirement along with the implications for saving. Importantly, the model incorporates a government budget constraint involving a payasyougo universal pension. In addition, the model allows for a compulsory private retirement savings scheme. Particular attention in the simulations is given to the potential impact on household saving rates of a range of policy changes. Typically the effect on saving rates is modest. In most instances, it would take very substantial changes in existing policy settings to induce significant increases in household saving rates.
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Longrun Fiscal Projections under Uncertainty: The Case of New Zealand
Ball, Christopher; Creedy, John; Scobie, Grant (2015)
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Victoria University of WellingtonThis paper introduces uncertainty into a fiscal projection model which incorporates population ageing along with a number of feedback effects. When fiscal policy responds in order to achieve a target debt ratio, feedback effects modify the intended outcomes. The feedbacks include the effect on labour supply in response to changes in tax rates, changes in the country risk premium in response to higher public debt ratios, endogenous changes in the rate of productivity growth and savings. Stochastic projections of a range of policy responses are produced, allowing for uncertainty regarding the world interest rate, productivity growth and the growth rates of two components of per capita government expenditure. The probability of exceeding a given debt ratio in each projection year, using a particular tax or expenditure policy,can then be evaluated. Policy implications are briefly discussed.
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Inequality in New Zealand 1983/84 to 2013/14*
Ball, Christopher; Creedy, John (2015)
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Victoria University of WellingtonThis paper provides an empirical analysis of annual income and expenditure inequality in New Zealand over a thirtyyear period from the early 1980s. The extent of redistribution through the tax and benefit system is also explored. Household Economic Survey data are used for each year from 1983/84 to 1997/98 inclusive, 2000/01 and 2003/04 , and for each year from 2006/07. Survey calibration methods are used to examine inequality on the assumption that a range of (approximately 50) population characteristics remain constant over the period. Furthermore, decomposition methods are used to examine the separate contributions to changing inequality of population ageing, changes in labour force participation and household structure.
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A Note on Computing the Gini Inequality Measure with Weighted Data
Creedy, John (2015)
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Victoria University of WellingtonThis note sets out some basic results regarding calculation of the Gini measure and its standard error in the context of crosssectional microdatasets where sample weights are provided for aggregation from sample to population values.
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Taxation and the User Cost of Capital : An Introduction
Creedy, John; Gemmell, Norman (2015)
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Victoria University of WellingtonThe aim of this paper is to provide an introduction to the concept of user cost and its determinants. Particular attention is given to the influence of taxation. The concept of user cost relates to the rental, the rate of return to capital, that arises in a profit maximising situation in which further investment in capital produces no additional profit. This paper sets out in some detail the range of assumptions involved in obtaining alternative expressions for the user cost. The user cost refers to a beforetax capital rental, the rate of return that ensures that the (aftertax) cost of capital is equal to the posttax returns over its life. Hence, associated with the user cost measure is an effective marginal tax rate. This can differ substantially from the statutory marginal rate applicable to the investor. A related effective average tax rate is also defined.
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Labour Supply in New Zealand and the 2010 Tax and Transfer Changes
Creedy, John; Mok, Penny (2015)
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Victoria University of WellingtonThis paper examines the simulated labour supply responses to the personal tax and transfer policy changes introduced in New Zealand in 2010, and the implications for revenue and income distribution. The main changes examined are the increase in the GST rate from 12.5 to 15 per cent, along with reductions in personal income tax rates and increases in the main benefit payments and assistance to families with children, to compensate for the rise in GST. The simulated labour supply responses were obtained using the Treasury’s behavioural microsimulation model, TaxWellB. The 2009/10 Household Economic Survey (HES) was used. The combined effect of all policy changes is to increase average labour supply slightly for all demographic groups. Labour force participation of sole parents is simulated to increase by 0.86 percentage points. In considering separate components, the change in income tax rates is found to have the largest effect on labour supply. This is not surprising given that it affected a large proportion of the population while the changes to the benefit system and assistance to families with children apply only to certain groups. The reforms are found to be approximately distribution neutral, in terms of the Gini inequality measure of aftertax income per adult equivalent person.
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Debt Projections and Fiscal Sustainability with Feedback Effects
Creedy, John; Scobie, Grant (2015)
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Victoria University of WellingtonThis paper analyses longterm fiscal sustainability with a model which incorporates a number of feedback effects. When fiscal policy responds to ensure longterm sustainability, these feedback effects can potentially modify the intended outcomes by either enhancing or dampening the results of the policy interventions. The feedbacks include the effect on labour supply in response to changes in tax rates, changes in the country risk premium in response to higher public debt ratios, and endogenous changes in the rate of productivity growth and savings that respond to interest rates. A model of government revenue, expenditure and public debt which incorporates these feedbacks is used to simulate the outcome of a range of fiscal policy responses. In addition the effects of population ageing and productivity growth are explored.
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Measuring Revenue Responses to Tax Rate Changes in MultiRate Income Tax Systems: Behavioural and Structural Factors
Creedy, John; Gemmell, Norman (2012)
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Victoria University of WellingtonThis paper shows how income changes in response to changes in marginal income tax rates (MTRs) translate into tax revenue changes for the familiar multistep income tax function used in many countries. Previous literature has focused on the relatively straightforward case of a proportional income tax or the top MTR only. The paper examines revenue responses at both the individual and aggregate levels, and it is shown that for individual MTRs within a multirate regime, simple expressions for tax revenue responsiveness can be derived that nevertheless capture the various behavioural and structural responses to income tax reforms involving changes to multiple rates and thresholds. Illustrations are provided using changes to the New Zealand income tax structure in the 2010 Budget. This reduced all marginal tax rates while leaving income thresholds unchanged.
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RevenueMaximising Elasticities of Taxable Income in MultiRate Income Tax Structures
Creedy, John; Gemmell, Norman (2012)
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Victoria University of WellingtonThe empirical literature on the elasticity of taxable income (ETI) sometimes questions whether estimated values are consistent with being on the revenueincreasing section of the Laffer curve, usually in the context of a single rate tax system or for top marginal rates. This paper develops conceptual expressions for this ‘Laffermaximum’ or revenuemaximising ETI for the multirate income tax systems commonly used in practice. Using the New Zealand income tax system in 2010 to illustrate its properties, the paper demonstrates that a wide range of revenuemaximising ETI values can be expected across individual taxpayers, across tax brackets and in aggregate.
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The Composition of Government Expenditure with Alternative Choice Mechanisms
Creedy, John; Moslehi, Solmaz (2012)
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Victoria University of WellingtonThis paper investigates the choice of the composition of government expenditure using both positive and normative approaches. The former involves aggregation over selfish voters (simple majority voting and stochastic voting are examined), while the latter involves the choice by a single disinterested individual (considered to maximise a social welfare function). The approach allows direct comparisons of the choice mechanisms. The structures examined include a transfer payment combined with a pure public good, and a transfer payment with taxfinanced education. Explicit solutions are obtained for the choice of expenditure components, and these are shown to depend on the proportional difference between the arithmetic mean and another measure of location of incomes, where the latter depends on the choice mechanism. In each case the expenditure composition depends on an inequality measure defined in terms of the proportional difference between a measure of location of the income distribution and the arithmetic mean, where the location measure depends on the decision mechanism.
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Inequality Comparisons in a MultiPeriod Framework: The Role of Alternative Welfare Metrics
Creedy, John; Halvorsen, Elin; Thoresen, Thor (2012)
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Victoria University of WellingtonThis paper considers the use of alternative welfare metrics in evaluations of income inequality in a multiperiod context. Using Norwegian longitudinal income data, it is found, as in many studies, that inequality is lower when each individual’s annual average income is used as welfare metric, compared with the use of a singleperiod accounting framework. However, this result does not necessarily hold when aversion to income fluctuations is introduced. Furthermore, when actual incomes are replaced by expected incomes (conditional on an initial period), using a model of income dynamics, higher values of inequality over longer periods are typically found, although comparisons depend on inequality and variability aversion parameters. The results are strongly influenced by the observed high degree of systematic regression towards the (geometric) mean, combined with a large extent of individual unexpected effects.
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Alternative Distributions for Inequality and Poverty Comparisons
Creedy, John (2013)
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Victoria University of WellingtonThis paper provides an introductory review of the alternative possible income distributions which can be used when making crosssectional evaluations of the effects of taxes and transfers using a household economic survey. This paper attempts to clarify the various alternatives, both for users of data and those wishing to interpret results. Special attention is given to the choice of income unit. The need to avoid spurious comparisons is stressed. The use of adult equivalence scales and the application of an explicit sharing rule are considered. Comparisons over time, where both the tax structure and the populations differ, are also considered. Numerical examples are used to highlight the alternative approaches and distributions.
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Tax Policy with Uncertain Future Costs: Some Simple Models
Ball, Christopher; Creedy, John (2013)
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Victoria University of WellingtonThis paper considers the extent to which the standard argument, that the disproportionate excess burden of taxation suggests the use of taxsmoothing in the face of future cost increases, is modified by uncertainty regarding the future. The role of uncertainty and risk aversion are examined using several highly simplified models involving a possible future contingency requiring an increase in taxfinanced expenditure.
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Social Expenditure in New Zealand: Stochastic Projections
Creedy, John; Makale, Kathleen (2013)
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Victoria University of WellingtonThis paper presents stochastic projections for 13 categories of social spending in New Zealand over the period 20112061. These projections are based on detailed demographic estimates covering fertility, migration and mortality disaggregated by single year of age and gender. Distributional parameters are incorporated for all of the major variables, and are used to build up probabilistic projections for social expenditure as a share of GDP using simulation methods, following Creedy and Scobie (2005). Emphasis is placed on the considerable uncertainty involved in projecting future expenditure levels.
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