The research work programme of the Chair can be grouped under three broad themes, each containing a number of projects, papers or presentations
Fiscal Policy and Growth in New Zealand and the OECD
This theme involves a number of projects/papers focused on measuring the impact of taxes and public expenditures on GDP and productivity using (i) macro data and allowing for heterogeneous fiscal-growth effects across countries and over time; and (ii) using firm-level micro data. This allows us to address such questions as: do fiscal-growth effects differ across the OCED? Do these effects feed through quickly and do they persist for long? How do tax settings affect firm-level innovation and productivity?
The impact of taxes on long-run OECD growth
This research builds on previous papers measuring the contribution of fiscal policy settings to long-run GDP growth rates. Current research is examining the robustness of fiscal-growth effects to alternative macro- and micro-based average and marginal tax rate measures and public expenditure ‘composition’ including the form of fiscal decentralization.
Norman Gemmell, Richard Kneller, Ismael Sanz
- Gemmell, N., Kneller, R. and Sanz, I. (2011) ‘The Timing and Persistence of Fiscal Policy Impacts on Growth: Evidence from OECD countries’, Economic Journal, 121, F33–F58.
- Gemmell, N., Kneller, R. and Sanz, I. (2012), 'Fiscal decentralization and economic growth in OECD countries: matching spending with revenue decentralization', Economic Inquiry , forthcoming, (published online, January 2013). View the Data.
- Gemmell, N., and Au, J. (2013). Government size, fiscal policy and the level and growth of output: a review of recent evidence. Journal of the Asia Pacific Economy, 18, 203–209. View the Presentation. [Revised version published as: Do smaller governments raise the level or growth of output? A review of recent evidence.(2013) Review of Economics, 64, 2, 85–116.]
- Gemmell, N., Kneller, R., and Sanz, I. (2013). Fiscal decentralization and economic growth: spending versus revenue decentralization. Economic Inquiry, 51, 1915–1931
- Gemmell, N., Kneller, R., and Sanz, I. (2015) ‘The growth effects of tax rates in the OECD’, Canadian Journal of Economics, vol. 47, no. 4. Published online, March 2015, DOI: 10.1111/caje.12105
- Gemmell, N., Kneller, R. and Sanz, I. (2014). Does the composition of government expenditure matter for long-run GDP levels. Victoria University of Wellington, Working Papers in Public Finance, WP10/2014.
- Gemmell, N., Kneller, R, McGowan, D, Sanz, I and Sanz-Sanz, J. (2013). Corporate taxation and productivity catch-up: evidence from European firms. Working Papers in Public Finance, WP 01/2013. Victoria Business School, Victoria University of Wellington.
Corporate taxation and productivity growth
This project explores how far higher rates of corporate taxation affect firm productivity convergence by reducing the after tax returns to productivity enhancing investments for small firms. It uses micro firm-level data for 11 European countries for 1996-2005 and compares results with the German tax reform ‘natural experiment’ in 2001.
Norman Gemmell, Richard Kneller, Danny McGowan, Ismael Sanz, Jose Sanz-Sanz
Gemmell, N., Kneller R, McGowan, D., Sanz, I. and Sanz-Sanz, J. (forthcoming, 2013), Corporate Taxation and Productivity Catch-Up: Evidence from European Firms'.
Measuring average marginal income tax rates in New Zealand
This research has estimated effective marginal tax rates faced by individuals, and for various aggregates of taxpayers in New Zealand. Estimates are reported for a number of personal marginal income tax rate measures for New Zealand since 1907, focusing mainly on the aggregate income-weighted average marginal tax rates (AMTRs) originally proposed by Barro and Sahasakul (1983, 1986). A paper describing the methodology, and a dataset containing around a century of Statistics New Zealand income distribution and tax data are available.
Debasis Bandyopadhyay, Robert Barro, Jeremy Couchman, Norman Gemmell, Gordon Liao and Fiona McAlister
Bandyopadhyay, D., Barro, R., Couchman, J., Gemmell, N., Liao, G. and McAlister, G. 'Average marginal income tax rates in New Zealand, 1907-2009', Victoria University of Wellington, Working Papers in Public Finance, WP 01/2012.
Fiscal stimuli and fiscal sustinability. How big is the trade-off?
Purpose The fiscal fall-out following the global financial crisis, especially in the US and the Eurozone, has prompted much debate over the size of fiscal stimulus effects on the economy and the potential conflicts with sustainable fiscal policy. Using simple simulation models, this research is examining the sensitivity of long-term fiscal sustainability measures to alternative assumptions regarding government debt dynamics and the size and nature of fiscal stimulus effects.
Gemmell, N., (forthcoming, 2013), 'Fiscal stimulus versus fiscal sustainability. How big is the trade-off'.
Long-run models of endogenous growth with public finance
This research has extended existing conceptual long-run, endogenous fiscal policy and growth models to examine how results differ between growth-maximisation and welfare maximisation objectives, and the impact of allowing for complementarity among factor inputs.
Norman Gemmell, Richard Kneller and Florian Misch
- Misch, F., Gemmell, N., and Kneller, R. (2013). Growth and welfare maximization in models of public finance and endogenous growth. Journal of Public Economic Theory, 15, 939–967.
- Misch, F., Gemmell, N., and Kneller, R. (2014). Using surveys of business perceptions as a guide to growth-enhancing fiscal reforms. Economics of Transition, 22, 683–4725.
Misch, F., Gemmell, N., and Kneller, R. (2014). Complementarity in models of public finance and endogenous growth. Working Papers in Public Finance, WP01/2014. Victoria Business School, Victoria University of Wellington.
Project International comparisons of the prices of goods and services in New Zealand
This project, sponsored by the New Zealand Productivity Commission (NZPC) investigates how far the relative prices of tradable and non-tradable goods and services are high or low in New Zealand by international standards, using the detailed price data from the World Bank’s International Comparison Project (ICP). It focuses on the relative prices of private and public services. The project will then explore how far established model-based explanations for such international price differences help explain New Zealand’s relative prices.
Norman Gemmell and Rod Falvey with Cherry Chang and Guanyu Zheng
- Gemmell, N. (2014). The prices of goods and services in New Zealand: An international comparison. Working Papers in Public Finance, WP06/2014. Victoria Business School, Victoria University of Wellington.
- Falvey, R., Gemmell, N., Chang, C., and Zheng, G. (2014). Explaining international differences in the prices of tradables and non-tradables (with a New Zealand perspective). Working Papers in Public Finance, WP08/2014. Victoria Business School, Victoria University of Wellington,
Personal income taxation : Behavioural, revenue and distributional aspects
Much of this research is based around applications of Feldstein’s (1995) ‘elasticity of taxable income’ (ETI) measure of taxpayer responses to tax rate changes. Projects in this part of the research programme are exploring both conceptual and New-Zealand specific aspects of ETI application. The role of the behavioural factors in tax gap measurement is also being examined, and current New Zealand-specific research is focussing on the impact of ageing and the fiscal (tax, expenditure) system on revenues and income redistribution.
Pensions, taxation, housing and retirement savings: Modelling household behaviour
This project develops a simple two-period overlapping generations model to explore the impact of tax and state pension policy on households’ demand for housing and their savings and borrowing behaviour. The conceptual framework is applied to a simulation model calibrated to capture the context of New Zealand households. The model helps to address such questions as:
- How do state-provided contributory and non-contributory pensions affect households’ retirement savings behaviour and housing demand?
- How would reductions in, or elimination of, interest income taxation affect households’ retirement saving and housing demand?
John Creedy, Norman Gemmell and Grant Scobie
Creedy, J., Gemmell, N., and Scobie, G. (2015). Pensions, savings and housing: A life-cycle framework with policy simulations. Economic Modelling, 46, 346-357.
Creedy, J., Gemmell, N., and Scobie, G. (2014). Pensions, savings and housing: A life-cycle framework with policy simulations. Treasury Working Paper No. 14/14. New Zealand Treasury, Wellington.
Revenue and behavioural respones of New Zealand personal income taxpayers
This project is examining a number of aspects of the behavioural responses of New Zealand personal income taxpayers. This includes deriving ETI expressions for multi-step income tax systems, simulating revenue-maximising ETIs, and using unit record data to estimate ETIs from New Zealand’s 2001 income tax reforms.
Simon Carey, John Creedy, Norman Gemmell and Josh Teng
Creedy, J. and Gemmell, N. (2012) ‘Measuring revenue responses to tax rate changes in multi-rate income tax systems: behavioural and structural factors’, International Tax and Public Finance. (Published online October, 2012). Working Paper version available.
- Carey, S., Creedy, J., Gemmell, N. and Teng, J. (2012). ‘Regression Estimates of the Elasticity of Taxable Income and the Choice of Instrument’. Victoria University of Wellington, Working Papers in Public Finance, 03/2012.
- Creedy, J. and Gemmell, N., ‘Revenue-Maximising Elasticities of Taxable Income in Multi-Rates Income Tax Structures’. Victoria University of Wellington, Working Papers in Public Finance, 05/2012.
Conventional measures of the tax gap and taxpayers' behavioural responses
This research is examining the reliability of alternative measures of taxpayer compliance: the so-called ‘tax gap’. Having reviewed conventional methodologies, current research is concentrating on assessing new methods proposed by the International Monetary Fund and OECD and on how taxpayers’ behavioural responses can be suitably recognised.
Norman Gemmell and John Hasseldine
- Gemmell, N and Hasseldine, J. (2012) ‘The tax gap: a methodological review’. Advances in Taxation, 20, December, pp.203-231. See slides presented at IRD Seminar, Feb 2013.
- Gemmell, N. and Ratto, M. (2012) ‘Behavioural responses to taxpayer audits: Evidence from random enquiries of UK self-assessed taxpayers’, National Tax Journal, 65, 33-58.
- Gemmell, N., and Hasseldine, J. (2014). Taxpayers' behavioural responses and measures of tax compliance 'gaps': A critique and a new measure. Fiscal Studies, 35, 275–296.
Tax and social spending effects of ageing
This project is part of the N.Z Treasury’s Long-Term Fiscal Statement research agenda in which Treasury examines fiscal sustainability over a 40-50 year horizon from 2013. A particular focus is on the fiscal consequences of demographic ageing and this project is examining how far the ageing process in N.Z can be expected to influence the level and composition of tax revenues, choices over social welfare spending, and the distributional aspects of these changes.
Chris Ball, John Creedy, Norman Gemmell and Katie Makle
Can tax rises pay for the public spending effects of ageing?’. Presentation to the NZ Treasury and Victoria University of Wellington, “Affording Our Future” Conference, VUW Business School, Wellington, December 2012. (with J. Creedy).
Taxes, transfers and the redistribution of income by age and gender in New Zealand
Purpose Following work by Aziz and others modelling the effect of long-run demographic change on the redistributive properties of the tax system, this research explores two questions. How far does the current tax/transfer system redistribute income in New Zealand? And, what is the ‘net incidence’ of fiscal policy in New Zealand over the life cycle? Both questions are analysed using the latest N.Z. Household Expenditure Survey (HES) micro data.
Omar Aziz, Norman Gemmell and Athene Laws
Aziz, O., Gibbons, M., Ball, C., and Gorman, E., (2012) 'The Effect on Household Income of Government Taxation and Expenditure in 1988, 1998, 2007 and 2010'. Policy Quarterly, 8,1, 29 – 38.
Income inequality, income mobility and the tax/transfer system in New Zealand
Following initial work on the age and gender composition of income inequality and fiscal incidence in New Zealand, this project aims to identify the extent of income inequality and income mobility among New Zealand taxpayers. Research is being conducted with Inland Revenue to analyse personal income data from the early 1990s to the present. Future stages of the research programme will consider conceptual linkages between alternative inequality and mobility measures and the roles of taxes, transfers and other forms of social welfare spending in mitigating or enhancing income mobility.
Omar Aziz, Athene Laws, John Creedy and Norman Gemmell
Aziz, O., Gemmell, N., and Laws, A‘ (2015) Income and Fiscal Incidence by Age and Gender: Some Evidence from New Zealand’ Review of Income and Wealth, published on-line, March 2015, DOI: 10.1111/roiw.12165
- Aziz, O., Gemmell, N., and Laws, A. (2013). The distribution of income and fiscal incidence by age and gender: Some evidence from New Zealand. Working Papers in Public Finance No. 10/2013. Victoria Business School, Victoria University of Wellington.
- Creedy, J. (2014a). Interpreting inequality measures and changes in inequality. Working Papers in Public Finance No. 11/2014. Victoria Business School, Victoria University of Wellington.
- Creedy, J. (2014b). A note on inequality-preserving distributional changes. Working Papers in Public Finance No. 14/2014. Victoria Business School, Victoria University of Wellington.
- Creedy, J., and Eedrah, J. (2014). Income redistribution and changes in inequality in New Zealand from 2007 to 2011: Alternative distributions and value judgements. Working Papers in Public Finance No. 16/2014. Victoria Business School, Victoria University of Wellington.
Estimating the elasticity of taxable income (ETI) and revenue maximisation
This project is investigating two aspects of the ETI concept:
- The role of different instruments in econometric estimates of the elasticity taxable income, based on taxpayer unit record data from the New Zealand 2001 reform.
- The definition and evaluation of revenue-maximising ETIs for the United States and New Zealand income taxes.
John Creedy, Norman Gemmell, Simon Carey and Josh Teng
- Carey, S., Creedy, J., Gemmell, N., and Teng, J., (2015) ‘Estimating the elasticity of taxable income in New Zealand’, Economic Record, 91, 292, 54-78
- Creedy, J., and Gemmell, N. (2014). Revenue-maximising tax rates and elasticities of taxable income in New Zealand. New Zealand Economic Papers, published online, 31 March 2014.
- Creedy, J., and Gemmell, N. (2014). Can fiscal drag pay for the public spending effects of ageing? New Zealand Economic Papers, 48, 183–195.
Creedy, J., and Gemmell, N. (2014). Measuring revenue-maximising elasticities of taxable income: Evidence for the US income tax. Working Papers in Public Finance No. 02/2014. Victoria Business School, Victoria University of Wellington.
Corporate taxation: Modelling revenue and behavioural responses
This third research theme consists of a number of related projects which together aim to provide a better understanding of how companies in New Zealand and elsewhere behave in response to the setting of corporate tax parameters. This will be relevant to subsequent modelling of the impacts of company tax policies on exporting, productivity and forecasts of company income tax revenues.
The user cost of capital, investment and exporting by New Zealand Firms
New Zealand’s corporate tax imputation system means that analyses of the user cost of capital (UCC) need to account for shareholder level, as well as firm-level, taxation. This project is therefore analysing forward-looking measures of the UCC for foreign and domestic firms in New Zealand, under different share-ownership and debt-funding assumptions. A second phase of the research will use these measures to examine the responses of New Zealand investment and exports.
Richard Fabling, Norman Gemmell, Richard Kneller and Lynda Sanderson
Corporate tax structures, effective tax rates and loss use by New Zealand firms
Building on the researchers’ previous work on the effect of corporate tax asymmetries on effective tax rates (ETRs), this project is analysing N.Z. Inland Revenue firm-level data on profits, losses and (backward-looking) ETRs. The objective is a better understanding of firm- and industry-level and other determinants of cross-firm differences in ETRs. Future research will build models of firms’ loss-acquisition and loss-use as tax off-sets in determining their effective tax rates and costs of capital.
John Creedy, Norman Gemmell and Sri Farley
Creedy, J. and Gemmell, N (2011) ‘Corporate tax asymmetries: effective tax rates and profit shifting’. International Tax and Public Finance, 18, 422-435.