《所得税改革的发展和收入的影响》英文文献及译文.docx

《所得税改革的发展和收入的影响》英文文献及译文.docx

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《所得税改革的发展和收入的影响》英文文献及译文

TheAustralianEconomicReview,vol.42,no.4,pp.496–506

FortheStudent

PersonalIncomeTaxation:

FromTheorytoPolicy

JohnCreedy

DepartmentofEconomics,TheUniversityofMelbourne

1.Introduction

Thisarticleconsiderstherelationshipbetweeneconomictheoryandpersonalincometaxpolicy.Itconcentratesonthewelfareanalysisofpersonalincometaxesandtransfers—whichtogetherdeterminetherelationshipbetweengrossandnetincomes—andtheresultingadvicewhichmaybeofferedtopolicy-makers.TheimportanceofthissubstantialcomponentofthetaxstructurehasbeenstressedbyKenHenry,whoistheChairoftheReviewPaneloftheAustralianTreasury,whichisconductinganextensivereviewcalledAustralia’sFutureTaxSystem.Hestatedthat,‘thetax-transfersystemisafundamentalpartofAustralia’ssocialandeconomicinfrastructure.Ithasbeen,andwillcontinuetobe,shapedbythechoicesthatAustraliansmakeaboutthetypeofsocietyinwhichtheychoosetolive.ItcanhaveaprofoundinfluenceontheopportunitiesavailabletoAustralians’.1Thepersonaltax-and-transfersystemisalsosubjecttoanextensivereviewinNewZealandbytheTaxWorkingGroup,undertheaegisoftheVictoriaUniversityofWellington.AnextensivereviewoftheUKtaxstructure,calledReformingtheTaxSystemforthe21stCentury,hasalsorecentlybeencarriedoutundertheaegisoftheInstituteforFiscalStudies.

Itisinevitablethateconomictheoryalonemustbelimitedintermsofpracticaldetail.Valuejudgementareinvolvedindecisionmakingbecausevirtuallyeverytax-andtransfersystemhasdistributionalimplications.Manyinterdependenciesareinvolvedsincetaxesaffectawiderangeofeconomicbehaviourandeveryoneisaffectedbythem.However,economicanalysescanprovidevaluableinsightsintothenatureofthoseinterdependenciesandcanhighlightpotentialunintendedconsequencesorcomplicationsarisingfromtaxchanges.

Afurtherdifficultyinlinkingtheoryandpolicyisthatthepossibleeffectsoftaxesareoftenexpressedintermsofmeasuresforwhichitisextremelydifficulttoobtainempiricalcounterparts.Insofarastaxmodelsprovidepolicyadvice,itisoftenexpressedinbroadtermsandisofanegativenature.However,inplanningtaxpolicy,itisextremelyimportanttounderstandwhyclearresultsmaynotbeachievedorwhyintuitivelyappealingresultsmaynotbereliable.AsEdgeworth（1925,ii,p.261）suggestedwhendiscussingincometaxationandtheconceptofminimumsacrifice:

Yetthepremises,howeverinadequatetothedeductionofadefiniteformula,maysufficeforacertainnegativeconclusion.Thegroundwhichwillnotserveasthefoundationoftheelaborateedificedesignedmayyetbesolidenoughtosupportabattering-ramcapableofbeingdirectedagainstsimpleredificesintheneighbourhood.

Section2brieflydiscussesdifferentapproachestotheevaluationoftaxes,placingthemodernwelfareanalysisoftaxationinhistoricalperspective.Section3turnstotheroleofsimple‘rulesofthumb’inpolicyadvice,inparticulartheruleconcerningabroadbaseandalowrate.Section4thenconsidersthesimplestpossibletax-and-transfersystem,thelinearincometax,asawayofillustratingwhyoptimaltaxmodelsquicklybecomeintractable.Insightsregardingthetax-rateschedulefromoptimaltaxmodellingarethendiscussedbrieflyinSection5.BriefconclusionsaredrawninSection6.

2.ModernTheoryinPerspective

Ifaskedforpracticaladviceabouttaxation,economistsformanyyearswouldhavereferredtothefamousfourmaximsofAdamSmith（1776）:

contributionaccordingtoabilitytopay;4certainty;convenience;and‘efficiency’（includingadministrativecosts,distortionstoactivityandthe‘vexationandoppression’involved）.Whilethelistofcriteriawasextendedandclarified,5inthediscussionofabilitytopaytherewasnoacceptanceofaredistributiverole.6Theappropriatetaxratewasthusdeterminedbytheindependentlygivenrevenuerequirement.7Anexplicitpreferenceforequalityoftreatmentviaproportionaltaxationwasmademostclearinthefollowingoften-quotedremarkmadein1845byMcCulloch,theauthorofthemostextensiveandsystematictreatmentofpublicfinanceintheclassicalliterature:

Themomentyouabandonthecardinalprincipleofexactingfromallindividualsthesameproportionoftheirincomeoroftheirproperty,youareatseawithoutrudderorcompass,andthereisnoamountofinjusticeandfollyyoumaynotcommit.[McCulloch1975,p.147]

Themainchangeintheapproachtotaxationcamefromthelaterintegrationofpublicfinanceintothegeneralareaofwelfareeconomics,whichwasitselfamajorconcomitantofthesuccessfulintroductionofautility-maximisingapproachtoexchangeinthe1870s.However,themostsystematicearlydevelopmentscamefromCohen-Stuartin1889（Cohen-Stuart1958）andEdgeworth（1897）ininvestigatingthebroadimplicationsforprogressivityoftheminimisationoftotaldisutilityfromtaxation—ignoringanypossiblebenefits.Withthecriterionofminimisingtotalsacrifice,progressionarisesfromdecreasingmarginalutility,butwithequalabsolutesacrifice,itdependsontheprecisebehaviourofthemarginalutilityofincome.Evenhere,therewasnoexplicitindependentroleforredistribution:

themaximandwasstrictlyconsideredtobetotalutility.

Thismovementreacheditsultimateconclusioninthe‘optimaltax’literature,beginningvirtuallyacenturyaftertheinitialintroductionofautilityanalysisintoeconomics.ThemathematicalanalysesofEdgeworthwereextendedbyallowing,inparticular,forlaboursupplyincentiveeffectsoftaxesandtransfers,andincludingarangeofspecificationsoftheobjectivesoftaxation,thusintroducingandistributiverole.Inthisfinaldevelopment,mostoftheimportantcriteriasuggestedbySmithandotherswereignored.Therelevantbranchofwelfareeconomicsintowhichoptimaltaxtheoryfallsisthetheoryofthe‘secondbest’,inviewofthefactthatthegovernmentisunabletotaxindividuals’endowmentsofabilityandinsteadtaxestheirincomes.Sometimes,stressisplacedonasymmetricinformationaspects,inthatthegovernmentcannotobserveabilitylevels.

Indrawingonthisbranchofmoderneconomictheorytoprovidepolicyadviceregardingtaxstructures,anumberofseriousdifficultiesimmediatelyarise.Taxmodelshaveawayofgettingverycomplicatedveryquickly.Manyinterdependenciesareusuallyinvolvedandclearviewscanonlybeobtainedbyabstractingfrommanyrealisticfeatures.Indeed,manyofthestrongresultsfromtaxanalyses（forexample,certainequivalenceresultsconcerninguniformdirectandindirecttaxesingeneralequilibriummodels）arebestinterpretedasdemonstratingthatinfacttheyaremostunlikelytoapplyinpractice.Themorerealisticthemodel,themoreithastoberestrictedtohighlyspecificquestions.

Thetheoryofoptimalincometaxationprovidesaninterestingcasestudy.Analysesinthistraditionhavegeneratedvaluableinsightsintothehighlycomplexrelationshipsinvolved.Theyhaveclarifiedwhatearlyinvestigatorsreferredtoas‘thegrammarofarguments’andtherewasnopretencethattheyweredesignedasguidanceforpracticalpolicyadvice.Theresultsarelargelyofanegativenature.Nevertheless,itispossiblethatthesubstantialchangesinthepersonalincometaxstructuresofmanycountriesoverthelast30yearshavebeeninfluencedbytheoptimaltaxliterature.Theseinclude,inparticular,reductionsinthenumberofmarginaltaxratesandthedegreeofrateprogression.Caremustbetakeninmakingsuchstatements.Establishingaclearrationaleforeachpolicyactionis,ofcourse,farfromstraightforwardandthesocialwelfarefunctionswhichplayafundamentalroleinoptimaltaxtheoryseldomrepresentthevariedobjectivesofpoliticians.

3.ARuleofThumb

Therearesomebasicprincipleswhichareworthkeepinginmindinthinkingabouttaxstructures.Theseincludepointssuchthat:

thereisadifferencebetweenlegalandeconomicincidence;taxescanbeshiftedinvariousways,includingtaxcapitalisation;largeefficiencycostscanariseevenwhentaxesappeartohavelittleeffectonbehaviour;andincentivesmatter.Thislistcouldeasilybeextended,butstilldoesnotprovidestrongpositiveadvice.However,manyeconomiststakeasastartingpointthebasicprinciplethatthebesttaxesarethosehavingabroadbaseandlowtaxrate.Asasimple‘ruleofthumb’,thisisnotastatementderivedfromasetoffundamentaloruniversalprinciples,oraxioms.Itismeantonlyasaguidingaim.Departuresfromtherulerequireaspecialcasetobemade.Abroadbase,whichisobtainedbyallowingfewexemptionsanddeductions,isofcourserequiredinordertoachievealowtaxrateforagivenrevenueobjective.Inturn,theneedforlowratesisgenerallyseenintermsoftheefficiencycostsoftaxation,viewedintermsoftheexcessburdencreatedbythetaxdistortiontobehaviour:

thismeasurestheexcessofthewelfarecostarisingfromthetaxovertherevenueraised.Appealismadetothelong-establishedresultthattheexcessburdenofataxisapproximatelyproportionaltothesquareofthetaxrate.13Particularpoliciesthenrequireatrade-offtobemadeintermsofabalanceoftheperceivedbenefitsoftheproposedpolicyagainsttheestimatedefficiencycosts.Itisnecessarytomakeexplicitthevaluejudgementsinvolvedandthenatureofthetrade-offbetweengainsandlosses.

Fewcountriesscorewellwhenapplyingthebasic‘broadbase–lowrate’ruleofthumb.Forexample,indirecttaxstructuresoftenhaveanumberofexemptionsandmore