Abstract
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.
Highlights
A focus on marginal tax rates (MTRs) is ubiquitous among studies of the numerous economic outcomes that can be affected by taxation
For macroeconomic level studies of the determinants of economic growth, Barro and Sahasakul (1983, 1986) proposed a method to calculate an ‘aggregate’ average marginal tax rate (AMTR) faced by personal income taxpayers. This approach was applied to US data by Barro and Sahasakul (1983, 1986), and more recently by Barro and Redlick (2011), to identify impacts of marginal tax changes on GDP growth. These calculated rates largely avoid the endogeneity problems of more commonly used aggregate-level MTRs based on tax revenue data
Income distribution data used here for the purpose of estimating AMTRs have largely been sourced from the New Zealand Official Yearbooks (NZOYB), which in turn were sourced from income tax returns filed with Inland Revenue
Summary
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. For macroeconomic level studies of the determinants of economic growth, Barro and Sahasakul (1983, 1986) proposed a method to calculate an ‘aggregate’ average marginal tax rate (AMTR) faced by personal income taxpayers This approach was applied to US data by Barro and Sahasakul (1983, 1986), and more recently by Barro and Redlick (2011), to identify impacts of marginal tax changes on GDP growth. This paper adapts the methodology proposed by Barro, Sahasakul and Redlick to derive a similar aggregate marginal tax rate measure for New Zealand This involves construction of an income-weighted average of individual-level marginal tax rates, having first accounted for various factors that allow effective, rather than statutory, marginal tax rates to be estimated. An Excel spreadsheet containing all of the main estimated tax rates accompanies this paper
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