Economics - Research Publications
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ItemDiscrete hours labour supply modelling: Specification, estimation and simulation(John Wiley & Sons, 2005)The assumption behind discrete hours labour supply modelling is that utility-maximising individuals choose from a relatively small number of hours levels, rather than being able to vary hours worked continuously. Such models are becoming widely used in view of their substantial advantages, compared with a continuous hours approach, when estimating and their role in tax policy microsimulation. This paper provides an introduction to the basic analytics of discrete hours labour supply modelling. Special attention is given to model specification, maximum likelihood estimation and microsimulation of tax reforms. The analysis is at each stage illustrated by the use of numerical examples. At the end, an empirical example of a hypothetical policy change to the social security system is given to illustrate the role of discrete hours microsimulation in the analysis of tax and transfer policy changes.
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ItemThe Optimal Composition of Government Expenditure(Department of Economics, The University of Melbourne, 2007)
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ItemModelling the composition of government expenditure in democracies(ELSEVIER SCIENCE INC, 2009-03-01)
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ItemDiscounting and the social time preference rate( 2007-03)This paper shows that the emphasis on a social time preference rate(defined as the sum of a pure time preference rate and the productof the elasticity of marginal valuation and the growth rate) in socialevaluations where money values are discounted using the social timepreference rate, is not advisable. It can give an entirely different, andarbitrary, ranking of alternative streams compared with the direct useof the pure time preference rate to discount ‘social welfare’ in eachperiod (where social welfare is a — usually isoelastic — function ofmoney values).
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ItemCorporation tax buoyancy and revenue elasticity in the UK( 2007-01)Observed changes in corporation tax revenues from year to year,which include the effects of changes in tax rates, deductions and compliance,appear to be highly volatile relative to profits, the tax base.This paper examines whether the ‘built-in’ fiscal drag properties ofcorporation tax can be expected to display similar properties. Simple,conceptual modelling demonstrates that the corporate tax revenueelasticity does indeed display this property in the presence of regularcyclical fluctuation in profit growth, suggesting that much of theobserved volatility is inherent to the corporation tax system.
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ItemCorporation tax revenue growth in the UK:a microsimulation analysis( 2007-01)This paper examines the built-in flexibility properties — as measuredby the elasticity of revenue with respect to profits — of the UKcorporation tax system. Emphasis is placed on determining some ofthe major influences on the extent to which total corporation taxrevenue changes when profits change over the economic cycle. A microsimulationmodel, CorpSim, is constructed and used to obtainnumerical results. In the model, corporations use group relief, capitalallowances and losses in a tax-minimising manner. The growth ofaggregate corporation tax revenue in practice in the UK appears tobe highly volatile in relation to the growth of profits. High volatilityin revenue elasticities is found to be especially associated witheconomic downturns. In mild economic downturns, corporation taxrevenue elasticities may rise (because tax growth falls less than profitgrowth), but in more severe downturns, large but temporary decreasesin revenue elasticities (and even negative elasticities) can be expected.??This research was conducted while Norman Gemmell was at HM Revenue & Customs’Analysis department. We are grateful to colleagues there for their support of this research,especially David Ulph and Edwin Ko. The views expressed in this paper are those of theauthors and do not necessarily reflect those of HMRC. We are grateful for comments fromparticipants at presentations at HMRC, HM Treasury and the New Zealand Treasury andInland Revenue Department.
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ItemDiscrete hours labour supply modelling: specification, estimation and simulation( 2005-03)The assumption behind discrete hours labour supply modellingis that utility-maximising individuals choose from a relatively smallnumber of hours levels, rather than being able to vary hours workedcontinuously. Such models are becoming widely used in view of theirsubstantial advantages, compared with a continuous hours approach,when estimating and their role in tax policy microsimulation. Thispaper provides an introduction to the basic analytics of discrete hourslabour supply modelling. Special attention is given to model specification,maximum likelihood estimation and microsimulation of taxreforms. The analysis is at each stage illustrated by the use of numericalexamples. At the end, an empirical example of a hypotheticalpolicy change to the social security system is given to illustrate the roleof discrete hours microsimulation in the analysis of tax and transferpolicy changes.
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ItemExcise taxation in New Zealand( 2005-03)In New Zealand, excise taxes are levied on three commodity groups: alcohol, tobacco andpetrol. The 2001 Tax Review, published by the New Zealand Treasury, argued thatexcises are inequitable and inefficient, and advised that these taxes should be removedand the revenue replaced by raising the standard rate of GST. This paper provides anempirical examination of these issues. First, the efficiency of New Zealand’s currentsystem of indirect taxes is examined. The welfare and redistributive effects resulting fromthe revenue-neutral removal of excise taxes are then examined. Welfare and redistributivemeasures are computed for a range of demographic groups and total weekly expenditurelevels. While the largest efficiency gains and reductions in inequality are observed forhouseholds with at least one smoker, the overall distributional implications of theproposed reforms are found to be small.
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ItemIndirect taxation and progressivity: revenue and welfare changes( 2005-03)This paper compares the disproportional effects of indirect taxation using two alternativemeasures, tax-progressivity and welfare-progressivity. In the context of an indirect taximposed on a single good, tax-progressivity requires the taxed good to be luxury. Incontrast, welfare-progressivity requires the equivalent variation as fraction of totalexpenditure to rise with total expenditure. Sufficient conditions for welfare-progressivityare derived for both the Linear Expenditure System (LES) and the Almost Ideal DemandSystem (AIDS). When the parameters of the direct utility functions are held constant,imposing homogeneous preferences, the condition required for welfare-progressivity isthe same as that required for tax-progressivity, namely that the taxed good is a luxury.Parameter constancy also implies a particular pattern for the variation in budget shareswith total expenditure, which is unique for each demand system. When parameters areallowed to vary with total expenditure, according to a general budget share relationship,which enables preference heterogeneity amongst households, welfare-progressivity isindependent of tax-progressivity for both models, giving rise to possible conflicts in taxand welfare disproportionality. The empirical application of these conditions to NewZealand data shows that many such cases of conflict can arise. Furthermore, conflictingresults are also obtained when examining the effects of the overall indirect tax structure.The majority of conflicts arise where tax-regressivity exists at the same time as welfare-progressivity.