The Cambridge Handbook of the Social Sciences in Australia

By Ian McAllister; Steve Dowrick et al. | Go to book overview

Chapter 8
Taxation
Patricia Apps, Glenn Jones and Elizabeth Savage
Although the economics of taxation has a long history, dating back to Ricardo and Cournot, the modern theory of taxation has developed over the past thirty years, building upon advances in microeconomic theory. Central to these are duality, general equilibrium theory and the theory of second best. This displaced the earlier tax literature, which had used simple rules to guide and evaluate policy. The new literature made social-welfare maximisation the explicit goal of taxation, and demonstrated that the rules of the earlier literature failed to take into account information and incentive constraints that governments inevitably face when designing policy.Imperfect information about the endowments of individuals prevents governments using personalised lump-sum taxes and transfers to redistribute.With lump-sum taxes, no individual can lower their tax liability by changing their behaviour. Once lump-sum taxes are ruled out, redistribution involves efficiency costs. Equity and efficiency must be addressed simultaneously. When taxes are based on imperfect indicators of endowments, such as income or consumption, taxation changes relative prices and this is the source of efficiency costs.In modern tax theory, information and incentive constraints are explicit.The implications for tax policy are wide-ranging: what can be taxed influences what should be taxed and the optimal rates of tax; taxes with narrower bases and differential rates can be superior in social-welfare terms to broad-based, constant-rate taxes; efficiency cannot be inferred from counting the number of different tax rates. Empirical analysis is now central to tax design and evaluation of reforms.While tax economics was making rapid advances in the international literature, in Australia there was ongoing tax-reform debate that tended to draw more from the earlier literature than the new developments.A number of prominent concerns emerged:
The base of personal income tax (PIT) had been eroded by the growth of untaxed fringe benefits and capital gains.
Self-employed taxpayers could lower tax by splitting income with their spouse. As a result, wage and salary earners faced an increasing relative burden.
A shift in expenditure from manufactured goods to services had eroded the base of the wholesale sales tax (WST).
The WST omitted many goods and services and applied different rates of tax.

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The Cambridge Handbook of the Social Sciences in Australia
Table of contents

Table of contents

  • Title Page *
  • Contents v
  • Figures and Tables vii
  • Contributors x
  • Preface and Acknowledgements xviii
  • Introduction 1
  • References 13
  • Part 1 - Economics 15
  • Chapter 1 - Privatisation 17
  • References 27
  • Chapter 2 - Competition Policy and Regulation 31
  • References 40
  • Chapter 3 - Economics and the Environment 45
  • References 57
  • Chapter 4 - Health Economics 60
  • References 70
  • Chapter 5 - Immigration 74
  • References 87
  • Chapter 6 - Labour Market and Industrial Relations 94
  • References 113
  • Chapter 7 - Income Distribution and Redistribution 118
  • References 134
  • Chapter 8 - Taxation 138
  • References 148
  • Chapter 9 - Innovation 153
  • References 165
  • Chapter 10 - International Trade and Industry Policies 168
  • References 180
  • Chapter 11 - The Macro Economy 186
  • Notes 199
  • References 200
  • Chapter 12 - Money and Banking 203
  • References 216
  • Part 2 - Political Science 221
  • Chapter 13 - Political Theory 223
  • References 231
  • Chapter 14 - Federalism and the Constitution 234
  • References 246
  • Chapter 15 - Legislative Institutions 249
  • References 260
  • Chapter 16 - Political Parties and Electoral Behaviour 266
  • References 283
  • Chapter 17 - Electoral Systems 287
  • References 302
  • Chapter 18 - Gender Politics 305
  • References 319
  • Chapter 19 - Interest Groups and Social Movements 323
  • References 339
  • Chapter 20 - Environmental Policy and Politics 345
  • References 355
  • Chapter 21 - International Relations 358
  • Notes 368
  • References 369
  • Chapter 22 - Political Economy 374
  • References 391
  • Chapter 23 - Public Policy and Public Administration 406
  • References 422
  • Part 3 - Sociology 431
  • Chapter 24 - Patterns of Social Inequality 433
  • References 457
  • Chapter 25 - Families and Households 462
  • References 477
  • Chapter 26 - Gender Perspectives 480
  • References 493
  • Chapter 27 - Work and Employment 499
  • Notes 511
  • References 512
  • Chapter 28 - Crime and Deviance 518
  • References 531
  • Chapter 29 - Health and Illness 536
  • References 552
  • Chapter 30 - Population 554
  • References 569
  • Chapter 31 - Race, Ethnicity and Immigration 573
  • Notes 585
  • References 586
  • Chapter 32 - Urban and Regional Sociology 590
  • Reference 598
  • Chapter 33 - Rural Sociology 604
  • Reference 619
  • Chapter 34 - Religion and Spirituality 626
  • Reference 632
  • Chapter 35 - Cultural Studies, Australian Studies and Cultural Sociology 638
  • References 651
  • Chapter 36 - Sociological Theory 654
  • References 664
  • Chapter 37 - Social Policy and Social Welfare 666
  • References 674
  • Author Index 678
  • Subject Index 696
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