The Central Role of a Well-Designed Income Tax in 'The Modern Economy'

Australian Tax Forum, Vol. 30, 2015

19 Pages Posted: 18 Dec 2015

See all articles by Patricia F. Apps

Patricia F. Apps

The University of Sydney - Faculty of Law; IZA Institute of Labor Economics

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Date Written: October 13, 2015

Abstract

Two of the most fundamental changes in the Australian economy since the middle of the 20th century have been the dramatic fall in fertility and the rise in female labour force participation. Over the same period, the progressivity of the income tax has declined significantly, despite rising inequality, and the individual as the tax unit has been replaced by a system of “quasi-joint” taxation for families, creating high effective tax rates for partnered mothers as second earners. In this article, we draw on household survey data to show that this direction of reform has been counterproductive, with strong negative effects on female labour supply and saving and, in turn, on productivity and the tax base. The analysis highlights the efficiency merits of a well-designed, individual-based income tax over consumption taxation in “the modern economy”.

Suggested Citation

Apps, Patricia F., The Central Role of a Well-Designed Income Tax in 'The Modern Economy' (October 13, 2015). Australian Tax Forum, Vol. 30, 2015, Available at SSRN: https://ssrn.com/abstract=2704696

Patricia F. Apps (Contact Author)

The University of Sydney - Faculty of Law ( email )

Faculty of Law, New Law Building F10
The University of Sydney
Sydney, NSW 2006
Australia
+61 2 9351 0241 (Phone)
+61 2 9351 0200 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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