Indirect Tax Reform in Australia: The Welfare Effects on Different Demographic Groups

The welfare effects of several indirect tax reforms in Australia are examined for a number of types of household in a range of income groups. The welfare changes, measured using equivalent variations, are based on the use of the linear expenditure system, where parameters are different in each of the income groups. The effects of the current system and of several reforms are found to differ significantly among the household types. However, the results suggest that the extent of vertical redistribution involved in the current indirect tax structure, and possible reforms to it, are small. The role of exemptions are examined in the case of food, for which the budget shares are systematically higher in lower income households, and health services. In view of the strong assumptions used at each stage, the results must be regarded as tentative.     

A regional analysis of food consumption in China

Two “laws” are used to describe the budget shares of staple food, other food, and non-food in 28 regions in China: Working's model, which describes the budget share of (total) food as a declining linear function of the logarithm of total consumption expenditure, and a second model that describes the ratio of the budget shares of staple and other food as a double-log function of total consumption expenditure. Staple food appears to be an inferior good in the richest regions but not in the other regions.     

The Tax‐smoothing Hypothesis: Evidence from Sweden, 1952–1999

This paper tests Barro's (1979) tax‐smoothing hypothesis using Swedish central government data for the period 1952–1999. According to the tax‐smoothing hypothesis, the government sets the budget surplus equal to expected changes in government expenditure. When expenditure is expected to increase, the government runs a budget surplus, and when expenditure is expected to fall, the government runs a budget deficit. The empirical evidence suggests that the model provides a useful benchmark and that tax‐smoothing behavior can explain about 60 percent of the variability in the Swedish central government budget surplus.     

A model of benefit and tax share discrimination by a monopoly bureau

This paper integrates the theory of demand for publicly provided goods in a democracy with the theory of bureaucratic supply in order to develop a model of benefit share and tax share discrimination by a monopoly bureau. The demand side of the political market is based on a utility maximizing model of voter behavior with voters' demands aggregated through a majority voting process. The supply side of the political market is based on a budget maximizing model of bureaucratic behavior. The bureau is assumed to possess monopoly power as a result of either its control over benefit shares or tax shares and, hence, implicit tax prices or its control over budget proposals placed on the agenda. Different degrees of discrimination are examined and in each case the equilibrium of the model yields a total budget for the bureau as well as distributions of benefit shares or tax shares across voters.     

On the estimation of 'an implicitly additive demand system'

Motivated by a lack of Engel flexibility in commonly used demand systems, Rimmer and Powell developed a new demand system. This system, referred to AIDADS, is implicitly, directly additive, possesses marginal budget shares and thus Engel elasticities, that vary nonlinearly with expenditure such that predicted budget shares are restricted to the [0,1] interval. Due to these attractive Engel properties, AIDADS represents a significant contribution to the literature on demand analysis. This paper presents an alternative estimation procedure to the one used by Rimmer and Powell and examines its properties via a case study. The proposed approach avoids a linear approximation employed in Rimmer and Powell's estimation framework. Based on a small Monte Carlo study, it appears that the approach produces more accurate estimates of the parameters and Engel elasticities.     

Demographic versus expenditure flexibility in Engel curves

We consider the effects of demographic and expenditure variables on consumer demand in a system of Engel curves using a smooth coefficient semiparametric model where the expenditure effects on the budget shares vary nonparametrically with demographic variables such as the age of head and number of children in the household. Our findings, based on UK micro data, suggest that with a smooth coefficient semiparametric model there is no need for nonlinear logarithmic expenditure effects in the budget shares. Furthermore, we find evidence of a trade-off between demographic and expenditure effects in Engel curves and that a rank-2 system of Engel curves where the logarithmic expenditure effects are allowed to vary with demographic characteristics either nonparametrically or as a third degree polynomial function cannot be rejected against a rank-3 (quadratic logarithmic) model. The implications on household behavior and welfare are also examined. We would like to thank an anonymous referee and Baldev Raj, the editor, for useful comments and suggestions. We would also like to thank the University of Cyprus for financial support, Theofanis Mamuneas for stimulating discussions and the Office of National Statistics for making available the UK Family Expenditure Survey data through the ESRC Data Archive. The last author would also like to acknowledge the financial support from SSHRC of Canada.     

Volatile Mining Revenues and State Government Budget Decisions

Mining royalties provide a volatile source of revenue for state governments in Australia. We explore the effects of changes in royalty revenue received by a state government on current-year budget decisions about expenditure, tax revenue and the budget surplus. The literature postulates different models for how lower-level government budget decisions respond to a revenue windfall from a higher level of government. Empirical evidence on these models over 1998–2019 provides strong evidence that over a half of a royalty windfall becomes a change in budget expenditure. Estimates of changes to tax revenues and the surplus are not definitive nor robust.     

A generalization of working's model

Working's (1943) model states that budget shares are linear functions of the logarithm of income; it implies constant differences between corresponding marginal and budget shares. A one-parameter generalization is proposed which allows each marginal share to be a linear function of the corresponding budget share. This model can be further extended (with one extra parameter) so that all goods are either specific substitutes or specific complements.     

A new approach to the demand for public goods

The individual demand for public goods is measured by a new survey research instrument which permits respondents to make hypothetical expenditure and tax recommendations with moveable penny coupons. Because each respondent faces an identical coupon budget constraint, it may be expected that observed expenditure and tax recommendations represent individual maximum utility. The instrument was applied to a random sample of 1000 residents of North Carolina. Statistical analysis of the resultant data indicates significant socio-economic differences in the preferences for particular spending and tax categories.     

The Federal Budget: How Much Difference Do Elections Make?

This article examines the budget process as a selection of priorities and how these priorities change over time with changing economic circumstances. Labor governments spend more on health, employment creation schemes, on welfare housing but less on industry assistance and on assisted immigration. The rate of growth of expenditure on social security decreased sharply after 1975. The revenue section examines how different governments have restructured the tax system. Broadly, the McMahon government pursued mildly progressive tax policies, the Whitlam government strongly progressive tax policies. Fraser's tax policies were regressive (except for taxpayers with children), with the Hawke government's policies in this area being nearer to Whitlam than to McMahon. Grouping budgets into election, pre-election and post-election budgets provides interesting contrasts. In terms of current (1984–85) prices the 'average' election budget produces tax cuts of $2300 million and expenditure increases of around $1 600 million. The two budgets which preceded the loss of office by the two Liberal Prime Ministers produced particularly large outlay increases. The categories of outlays which show evidence of being used as election-bait are identified.     

Do budget maximizing public officials increase the probability of property reassessment?

County governments in Pennsylvania face non‐binding limits on their property tax rates. These are considered non‐binding because they do not place a limit on tax levies or expenditures. Assuming local public officials have monopoly power, tax rate limits can be circumvented by reassessing the property tax base. A two‐stage process was hypothesized in which the probability of reaching tax rate limits first was determined and the probability of reassessment then was determined. The effect of budget maximizing government officials at each stage was tested for 66 Pennsylvania counties over the 1970–1995 period. The empirical results showed that variables associated with budget maximizing behaviour influenced the choice in each stage. Public expenditure growth increased the probability of reaching the tax rate limit in the first stage while reaching the tax rate limit increased the probability of reassessment in the second stage. The estimates also showed that economic, fiscal and taste variables were significant determinants of these probabilities.     

User Charges as Redistributive Devices

In this model, a mix of public and private provision of private goods arises naturally in the economy. We characterize the social optimum in the presence of a linear tax/public expenditure system and show how a user charge can be welfare- or Pareto-improving, when the users are the poor. The charge discourages the rich from opting into the public program and allows the policymaker to restructure the tax/expenditure system in a way that is beneficial for the poor. If the ensuing welfare gain is large enough to outweigh the loss for the remaining users, a charge is desirable.     

Measuring the Welfare Effects of Price Changes: A Convenient Parametric Approach

This paper shows how compensating and equivalent variations, and the equivalent income, resulting from a set of price changes can be calculated. A linear expenditure system is estimated for each of a range of total expenditure groups using cross-sectional budget data. The measures of welfare change can be used to determine the effect on the welfare of individuals in different income groups. Alternative social welfare functions can be used to evaluate the resulting distribution of equivalent income. The parametric approach is particularly useful where few data are available     

Intertemporal Budget Policies and Macroeconomic Adjustment in Indebted Open Economies

This paper analyzes the role of government intertemporal budget policies in a growing open economy including nominal assets in the presence of an upward sloping supply of debt. This introduces transitional dynamics that influence the effects of government policy instruments on economic growth and the long term fiscal liability. It is shown that capital income taxes or a combination of tax‐cum‐expenditure or government expenditure alone can balance the long term intertemporal government budget constraint. However, those results are shown to depend critically upon the extent of distortion in capital flows brought about the upward sloping supply of debt.     

地方政府财政支出的结构偏异——基于跨界公共事务的视角*

本文通过理论分析发现,我国地方政府不仅存在生产性支出偏好,还会在外部性和信息不对称等因素影响下,改变其对跨界公共事务的资金投入。在“量入为出”预算编制原则下,本文利用2010—2019年我国31个省级政府面板数据,实证分析了地方政府一般公共预算收入对跨地区民生性支出、跨地区生产性支出、地区民生性支出和地区生产性支出四类财政支出的影响。结果表明：在全国层面上,跨地区生产性支出受财政收入的影响最大,地区民生性支出次之。比较三类地区的结果发现,区域内政府竞争强度越高,地方政府对外部性的重视程度越强,因而当地用于跨界公共事务的资金会越少。从不同类型财政收入对财政支出的影响结果来看,只有间接税收入可以同时对三类地区财政支出产生显著影响。最后根据研究结论,本文提出了相应的政策建议。     

Top marginal taxation and economic growth

The article explores the relationship between top marginal tax rates on personal income and economic growth. Using a data set of consistently measured top marginal tax rates for a panel of 18 OECD countries over the period 1965–2009, this article finds evidence in favour of a quadratic top tax–growth relationship. This represents the first reported evidence of a nonmonotonic significant relationship between top marginal income tax rates and economic growth. The point estimates of the regressions suggest that the marginal effect of higher top tax rates becomes negative above a growth-maximizing tax rate in the order of 60%. As top marginal tax rates observed after 1980 are below the estimated growth-maximizing level in most of the countries considered, a positive linear relationship between top marginal tax rates and GDP growth is found over the sub-period 1980–2009. Overall, results show that raising top marginal tax rates which are below their growth maximizing has the largest positive impact on growth when the related additional revenues are used to finance productive public expenditure, reduce budget deficits or reduce some other form of distortionary taxation.     

财政支出分权如何影响政府支出预算偏离*

政府支出决算与预算的差异可称之为支出预算偏离，其大小直接关系到现代预算制度的建设和积极财政政策提质增效的效果。预算最大化理论指出地方政府追求自由裁量预算的最大化，这会导致预算支出大于决算支出，而财政支出分权则便利了地方政府追求自由裁量预算最大化的条件，因此，财政支出分权是导致支出预算偏离的一个重要因素。利用1994—2017年全省层面和市县加总层面的财政预决算数据，本文发现，财政支出分权程度越高，政府支出预算偏离的程度也越大。不同形式的稳健性检验较好地支持了上述结论。此外，经济发展水平和财政透明度能够降低财政支出分权对预算偏离影响的程度。合理调整不同层级政府之间的事权，建立事权与支出责任相匹配的财政体制，适度加强中央事权和支出责任，将有效降低政府支出预算偏离的程度。     

财政支出分权如何影响政府支出预算偏离*

政府支出决算与预算的差异可称之为支出预算偏离，其大小直接关系到现代预算制度的建设和积极财政政策提质增效的效果。预算最大化理论指出地方政府追求自由裁量预算的最大化，这会导致预算支出大于决算支出，而财政支出分权则便利了地方政府追求自由裁量预算最大化的条件，因此，财政支出分权是导致支出预算偏离的一个重要因素。利用1994—2017年全省层面和市县加总层面的财政预决算数据，本文发现，财政支出分权程度越高，政府支出预算偏离的程度也越大。不同形式的稳健性检验较好地支持了上述结论。此外，经济发展水平和财政透明度能够降低财政支出分权对预算偏离影响的程度。合理调整不同层级政府之间的事权，建立事权与支出责任相匹配的财政体制，适度加强中央事权和支出责任，将有效降低政府支出预算偏离的程度。     

THE OPTIMAL DIVISION OF GOVERNMENT EXPENDITURE BETWEEN PUBLIC GOODS AND TRANSFER PAYMENTS

This paper examines the optimal ratio of transfer payments to expenditure on public goods, for a given income tax rate. The transfer payment is then determined by the government's budget constraint. The optimal ratio of transfers to public good expenditure per person is expressed as a function of the ratio of the median to the arithmetic mean wage, and of the tax rate. Reductions in the skewness of the wage rate distribution are associated with reductions in transfer payments relative to public goods expenditure, at a decreasing rate. Furthermore, increases in the tax rate, from relatively low levels, are associated with increases in the relative importance of transfer payments. But beyond a certain level, further tax rate increases are associated with a lower ratio of transfers to public goods, because of adverse incentive effects.     

Fiscal policy simulations – a comparison of UK models

The problem of endowing large applied general equilibrium models with numerical values for parameters is formidable. For example, a complete set of own- and cross-price elasticities of demands for the MONASH model of the Australianeconomy involves in excess of 50000 items. Invoking the minimal assumptions that demand is generated by utility maximization reduces the load to about 26000 - obviously still a number much too large for unrestrained econometric estimation. To obtain demand systems estimates for a dozen or so generic commodities at a top level of aggregation (categories like ‘food’, ‘clothing and footwear’, etc.), typically Johansen's lead has been followed, and directly additive preferences imposed upon the underlying utility function. With the move beyond one-step linearized solutions of applied general equilibrium models, the functional form of the demand system adopted becomes an issue. The most celebrated of the additive-preference demand systems, the linear expenditure system (LES), has one drawback for empirical work; namely, the constancy of marginal budget shares (MBSs) - a liability shared with the Rotterdam system. To get around this, Theil and Clements used Holbrook Working's Engel specification in conjunction with additive preferences; unfortunately both Working's formulation and Deaton and Muellbauer's AIDS have the problem that, under large changes in real incomes, budget shares can stray outside the [0, 1] interval. It was such behaviour that led Cooper and McLaren to devise systems with better regularity properties. These systems, however, are not globally compatible with any additive preference system. In this paper we specify, and estimate, at the six-commodity level, an implicitly directly additive-preference demand system which allows MBSs to vary as a function of total real expenditure and which is globally regular throughout that part of the the price-expenditure space in which the consumer is at least affluent enough to meet subsistence requirements.