Effective Marginal Tax Rates: The New Zealand case

Publication type: 
Working paper
Dr Patrick Nolan
Publication date: 
JEL Codes: 
H24 - Personal Income, Other Non-business Taxes, Subsidies

Effective Marginal Tax Rates (EMTRs) reflect the interaction of the personal income tax scale, main benefits, and supplementary benefits. They show how a dollar increase in gross income translates to an increase in income in the hand (after taxation and the withdrawal of income-tested assistance). This paper presents an algebraic approach to estimating EMTRs in New Zealand. EMTR profiles are then illustrated with examples of hypothetical families. This paper also discusses the design of family and working tax credits in five liberal welfare states, including Australia and New Zealand, as these programmes have at times been suggested as key instruments in addressing the problems associated with high EMTRs (poverty traps).

Also published as New Zealand Productivity Commission Working Paper 2018/01. ISBN:978-1-98-851909-8.

If you would like to access the background material - EMTR spreadsheet and Tax credit spreadsheet - please contact Patrick.Nolan@productivity.govt.nz. (It is not possile to upload Excel files on our website.)