Abstract

New Zealand's tax system is relatively simple and transparent by international standards. But there may still be scope for reducing the costs of taxation. This paper develops a stylized model for New Zealand to evaluate the effects of reducing higher-income tax rates. The results suggest that a reduction in higher-income tax rates would improve New Zealand's long-run economic performance if it were financed by a decline in (non-productive) government spending and/or increases in revenue from other less distortional taxes. Despite the reductions in the higher-income tax rates, higher-income taxpayers would continue to pay a larger proportion of the tax burden than lower-income taxpayers.

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