Research programme

Research by the Chair includes policy focused projects that aim to show how rigorous public finance research can inform tax and expenditure policy in practice.

The research work programme of the Chair in Public Finance includes both traditional academic focused projects and more policy focused projects. This page summarises some current and recent research projects involving the Chair.

The growth impact of taxes in the OECD

Summary

This research builds on previous papers measuring the contribution of fiscal policy settings to long-run GDP growth rates. Recent papers examine the robustness of fiscal-growth effects to alternative macro- and micro-based tax rate measures; the growth impact of changes in public expenditure composition; and firm-level productivity effects of corporate tax reform.

Researchers

Norman Gemmell, Richard Kneller, Florian Misch, Ismael Sanz, José Sanz-Sanz

Published papers

Gemmell, N., Kneller, R, McGowan, D, Sanz, I and Sanz-Sanz, J. (2017) Corporate taxation and productivity catch-up: evidence from European firms. Scandinavian Journal of Economics, online at DOI: 10.1111/sjoe.12212.

Gemmell, N., Kneller, R. and Sanz, I. (2016) Does the composition of government expenditure matter for long-run GDP levels? Oxford Bulletin of Economics & Statistics, 78, 522-547.

Gemmell, N., Kneller, R., and Sanz, I. (2014) The growth effects of tax rates in the OECD. Canadian Journal of Economics, 47, 4, 1217-1255.

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.

Gemmell, N., Kneller, R. and Sanz, I. (2013) Fiscal decentralization and economic growth in OECD countries: matching spending with revenue decentralization. Economic Inquiry,51, 1915–1931.

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.

Gemmell, N., and Au, J. (2013) Do smaller governments raise the level or growth of output? A review of recent evidence. Review of Economics, 64, 2, 85–116.

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.

Income inequality, income mobility and the tax/benefit system in New Zealand

Summary

This project aims to identify the extent of income inequality and income mobility among New Zealand taxpayers over several decades, including annual estimates of income inequality since the 1930s. Current research is focusing on conceptual and empirical 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 and inequality.

Researchers

Chris Ball, John Creedy, Norman Gemmell and Loc Nguyen

Published papers

Creedy, J., Gemmell, N. and Nguyen, L. (2017) Income inequality in New Zealand 1935-2014. Australian Economic Review, forthcoming.

Aziz, O., Gemmell, N., and Laws, A. (2016) Income and fiscal incidence by age and gender: some evidence from New Zealand. Review of Income and Wealth, 62, 3, 534-558.

Working papers

Creedy, J. and Gemmell, N. (2016) Types of income mobility: insights from TIM curves. Working Papers in Public Finance, 05/2016. Victoria Business School, Victoria University of Wellington.

Ball, C. (2016) Estimating income dynamics from cross-sectional data using matching techniques. Working Papers in Public Finance, 06/2016, Victoria Business School, Victoria University of Wellington.

Modelling and benchmarking income taxes & transfers in New Zealand

Summary

This project began in mid-2016 and is developing new behavioural microsimulation models of personal income taxes and transfer in New Zealand. These will be ‘benchmarked’ internationally by comparing with similar models for Australia and a number of European countries. The project aims to improve the evidence base for tax policy advice in practice, and is being conducted in collaboration with modellers at the New Zealand Treasury. It is also supported by a three-year Endeavour Fund grant from the Ministry of Business Innovation and employment (MBIE).

Researchers

John Creedy, Norman Gemmell and Penny Mok

Working papers

Creedy, J. and Mok, P. (2017) The Marginal Welfare Cost of Personal Income Taxation in New Zealand. Working Papers in Public Finance, 09/2017. Victoria Business School, Victoria University of Wellington.

Creedy, J. and Mok, P. (2017) Labour Supply Elasticities in New Zealand. Working Papers in Public Finance, 10/2017. Victoria Business School, Victoria University of Wellington.

Creedy, J. and Mok, P. (2015) Labour Supply in New Zealand and the 2010 Tax and Transfer Changes. New Zealand Treasury Working Paper No. 15/13. Wellington: The Treasury.

Revenue and behavioural responses of New Zealand income taxpayers

Summary

This research is mainly based around applications of Feldstein’s (1995) ‘elasticity of taxable income’ (ETI) measure of taxpayer responses to tax rate changes, exploring both conceptual and applied New-Zealand specific aspects. Recent papers have included 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. Current research, working with Inland Revenue modellers, is exploring how to estimate ETIs from the New Zealand 2010 tax reform that involved across-the-board income tax reductions along with increases in GST. The research is also supported by a three-year Endeavour Fund grant from the Ministry of Business Innovation and employment (MBIE).

Researchers

John Creedy, Norman Gemmell and Josh Teng

Published papers

Creedy, J. and Gemmell, N. (2017). The Elasticity of taxable income: allowing for endogeneity and income effects. New Zealand Economic Papers, forthcoming.

Creedy, J. and Gemmell, N. (2017) Measuring revenue-maximising elasticities of taxable income: evidence for the US income tax. Public Finance Review, 45, 2, 174-204.

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. (2015) Revenue-maximising tax rates and elasticities of taxable income in New Zealand. New Zealand Economic Papers, 49, 2, 189-206.

Creedy, J. and Gemmell, N. (2013) Measuring revenue responses to tax rate changes in multi-rate income tax systems: behavioural and structural factors. International Tax and Public Finance, 20, 6, 974-991.

Tax compliance, penalties & enforcement

Summary

Standard models of tax evasion predict effects on compliance that are dependent on the probability of detection, the tax rate and the penalty for evasion. While compliance effects of the first two have been extensively debated and tested, the effect of penalties has rarely been tested directly. This project is developing models of late payment non-compliance when enforcement is imperfect, and testing for the effects of both actual and perceived penalty rates on late payment compliance based on an experiment involving a sample of New Zealand GST payers.

Researchers

Norman Gemmell and Marisa Ratto

Working papers

Gemmell, N. and Ratto, M. (2017) The Effects of Penalty Information on Tax Compliance: Evidence from a New Zealand Field Experiment. Working Papers in Public Finance, 03/2017. Victoria Business School, Victoria University of Wellington.

Gemmell, N. (2016) An Allingham-Sandmo tax compliance model with imperfect enforcement. Working Papers in Public Finance, 09/2016. Victoria Business School, Victoria University of Wellington.

Tax compliance gaps & responses

Summary

This research project (2012-16) examined 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.

Researchers

Norman Gemmell, John Hasseldine and Marisa Ratto

Published papers

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.

Gemmell, N and Hasseldine, J. (2012) The tax gap: a methodological review. Advances in Taxation, 20, December, pp.203-231.

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.

The user cost of capital, effective tax rates and firms’ investment

Summary

This project reviews alternative approaches to measurement of firm-level effective tax rates and the user cost of capita. Recent work has focused on comparing the role of user cost and effective tax rate measures when estimating tax effects on investment when interest rates are low.

Researchers

John Creedy and Norman Gemmell

Published papers

Creedy, J. and Gemmell, N. (2017) Effective tax rates and the user cost of capital when interest rates are low. Economics Letters, 156, 82-87.

Creedy, J. and Gemmell, N. (2015) Taxation and the user cost of capital. Journal of Economic Surveys, 31, 1, 201-225.

The size and scope of the public sector in New Zealand

Summary

This project began by documenting the changing size and scope of the public sector in New Zealand since the early 20th century, using a variety of metrics to assess government size. Using a public expenditure to GDP ratio metric, the project is examined how far short and long-term changes in size since the 1970s can be explained by existing theories of public expenditure applied to New Zealand. The work is being undertaken in conjunction with the New Zealand Institute of Economic Research (NZIER) and is contributing to their public data project at www.data1850.com.

Researchers

Norman Gemmell, Derek Gill and Loc Nguyen

Published papers

Gemmell, N. (2017) Reforms to New Zealand superannuation eligibility: are they a good idea? Policy Quarterly, 13, 2, 35-39.

Gemmell, N. and Gill, D. (2016) The myth of the shrinking state? What does the data show about the size of the state in New Zealand. Policy Quarterly, 12, 3, 3-10.

Working papers

Gemmell, N., Gill, D. and Nguyen, L. (2016) The changing size of the state in New Zealand, 1900-2015. Working Papers in Public Finance, 04/2016, Victoria Business School, Victoria University of Wellington.

Gemmell, N., Gill, D. and Nguyen, L. (2016) Explaining the size of the state in New Zealand, 1972-2014. Working Papers in Public Finance, 10/2016, Victoria Business School, Victoria University of Wellington.

Public Service productivity

Summary

This project is reviewing current evidence on public sector productivity in New Zealand at both the aggregate level and for key sectors, drawing on international literature on concepts, measurement and evidence. It aims to develop a principled framework for the analysis of public sector productivity with a focus on the micro level. This micro focus began in 2015-16 with public education. Specifically, the project reviewed existing evidence on productivity in the New Zealand education sector, and assessing introduced new approaches to adjusting for quality in measuring education sector productivity in in New Zealand. In 2016-17, the project is examining similar issues for public sector health services.

Researchers

Norman Gemmell, Patrick Nolan, Grant Scobie

Working paper

Gemmell, N., Nolan, P. and Scobie, G.S. (2017) Public sector productivity: Quality adjusting sector-level data on New Zealand schools. New Zealand Productivity Commission Working Paper 2017/2, May 2017.

Local taxes and Auckland agglomeration

Summary

In 2010, the Auckland ‘super city’ was formed through the amalgamation of seven local authorities, consisting of around 200 suburban entities and towns. The amalgamation resulted in communities using capital values as the basis for local taxation (rates), whereas some communities had previously used land values. The new city also transitioned to a single system of ‘development contributions’ paid by developers. This project is examining how far the changes in the Auckland property tax regime affected the location and intensity of building development.

This research is being undertaken with the support of Lincoln Institute of Land Policy, Cambridge, Massachusetts, USA, and Motu Economic and Public Policy Research, Wellington, NZ.

Researchers

Norman Gemmell, Arthur Grimes, Mark Skidmore

Working paper

Gemmell, N., Grimes, A. and Skidmore, M. (2016) Do local property taxes affect new building development? Results from a quasi-natural experiment in New Zealand. Working Papers in Public Finance, 08/2016, Victoria Business School, Victoria University of Wellington.