Abstract
Determining the fiscal capacity of Australian States and Territories is challenging
because variation in tax rates can affect the level of economic activity and the
underlying revenue bases. The aim of this study is to estimate tax elasticities for a
number of State taxes from a variety of existing data sources. In particular, we combine
different data sources and econometric techniques to obtain reliable estimates of the
effects of changes in tax rates on revenue bases (“tax elasticities”).
As our main empirical strategy, we apply a difference-in-difference estimation
approach by exploiting the variation in tax rates (and thresholds) across States and
Territories and changes over time as ‘natural experiments’ to identify the effects of tax
rate changes on revenue bases. We pay particular attention to potential endogeneity
problems and employ instrumental variable appropriate to deal with possible
specification problems.
because variation in tax rates can affect the level of economic activity and the
underlying revenue bases. The aim of this study is to estimate tax elasticities for a
number of State taxes from a variety of existing data sources. In particular, we combine
different data sources and econometric techniques to obtain reliable estimates of the
effects of changes in tax rates on revenue bases (“tax elasticities”).
As our main empirical strategy, we apply a difference-in-difference estimation
approach by exploiting the variation in tax rates (and thresholds) across States and
Territories and changes over time as ‘natural experiments’ to identify the effects of tax
rate changes on revenue bases. We pay particular attention to potential endogeneity
problems and employ instrumental variable appropriate to deal with possible
specification problems.
| Original language | English |
|---|---|
| Commissioning body | Commonwealth Grants Commission |
| Number of pages | 183 |
| Publication status | Published - 2018 |