Department of Economics. University of Melbourne. Parkville Victoria 3052 Australia
ABSTRACT
This paper examines the question of whether indirect tax rates should be uniform, using four different modelling strategies. First, marginal tax reform is examined. This is concerned with the optimal direction of small changes in effective indirect tax rates, and requires considerably less information than the calculation of optimal rates. Second, the welfare effects of a partial shift from the current indirect tax system in Australia towards a goods and service tax (GST) are considered, with particular emphasis on differences between household types and the role of exemptions. The third approach examines the extent of horizontal inequity and reranking that can arise when there are non-uniform tax rates. These inequities arise essentially because of preference heterogeneity. Fourth, in view of the stress on a distributional role for exemptions of certain goods from a GST, the potential limits to such redistribution are considered.
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