Tax and Transfer Policy Institute (TTPI)
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Publication Open Access Behavioural insights of tax compliance: An overview of recent conceptual and empirical approaches(Crawford School of Public Policy, The Australian National University, 2016-04) Holzinger, Lilia Arcos; Biddle, NicholasMany tax policies in Australia and comparable countries are based on a completely rational individual decision maker. However, recent evidence in the fields often referred to as behavioural insights (combining behavioural economics and psychology) have shown that people are neither completely rational not completely irrational. Rather, they exhibit predictable biases that reduce the probability of achieving their own stated aims. In this paper, we summarise the evidence on behavioural insights related to tax compliance, with a particular focus on the more limited set of research on the decision making of small-medium enterprises.Publication Open Access Revealing tax evasion: Experimental evidence from a representative survey of Indonesian firms(Crawford School of Public Policy, The Australian National University, 2024-03) Hoy, C.; Jolevski, F.; Obeyesekere, A.This paper examines the pervasiveness of tax evasion among firms in Indonesia and the characteristics associated with higher levels of noncompliance. Tax evasion is estimated through a randomized, double-list experiment embedded in a nationally representative survey of 2,955 registered firms. This revealed whether firms pay all the taxes they owe without them having to disclose this directly. Across both list experiments, around a quarter of the firms indirectly reveal that they have evaded taxes. Firms that do not export, face intense competition from informal firms, and believe tax administration is a major obstacle to their business are the most likely to evade taxes. These findings help to inform the enforcement activities of tax authorities in middle-income countries, which face substantial challenges in estimating levels of tax evasion and identifying noncompliant taxpayers.Publication Open Access Land of the (Un)Fair Go? Peer gender norms and gender gaps in the Australian labour market(Crawford School of Public Policy, The Australian National University, 2023-03) Hickson, J.; Marshan, J.Australian attitudes towards women remain more conservative than in many other OECD countries. We examine the effect of these norms on female labour outcomes and intrahousehold dynamics using a peer effects model and nearly two decades of longitudinal household survey data. Our results indicate that conservative gender norms are costly to individual women and are an important determinant of gender inequality, resulting for women in lower lifetime rates of labour force participation and suppressed lifetime earnings trajectories. Estimated effects are large in magnitude: shifting norms to be one standard deviation more egalitarian would eliminate three-quarters of the gender gap in employment and around two-thirds of the gender pay gap. More egalitarian peer norms are also associated with increased household incomes, a more equitable division of unpaid domestic work, and greater overall life satisfaction.Publication Open Access COVID-19 private pension withdrawals and unemployment tenures(Crawford School of Public Policy, The Australian National University, 2022-03) Sainsbury, T.; Breunig, R.; Watson, T.This is the first study to evaluate the effects of early pension withdrawal policies on tenures on unemployment payments in the COVID-19 context. We use a novel set of linked whole-of-population administrative records to examine more than half-a-million Australians who found themselves newly on an unemployment payment in the initial months of the COVID-19 pandemic. We estimate that receiving a lump sum of up to A$10,000 from superannuation accounts at the most acute phase of the pandemic, between April and June 2020, resulted in a 32 per cent lower exit rate from unemployment benefits inside the first six months of a spell on benefits, and 14 per cent inside a year of spell. Receiving a lump sum during the second window of opportunity - mostly in July and August 2020 and as a labour market recovery was underway - resulted in a 34 per cent lower exit from unemployment benefits inside the first nine months of spell, and 14 per cent inside fifteen months of spell. The job-seeking deterrence is ultimately temporary but it took close to eighteen months for an estimated convergence between withdrawers and those that didn't withdraw. 162,000 withdrawers with completed spells on average spent an additional 7 weeks on unemployment payments, translating to 8 million additional days in aggregate, and implying A$580 million in additional pandemic fiscal expenditure.Publication Metadata only Rehabilitating L.W. Sumner's 'Happiness Theory of Welfare' - Part 1: Sumner's welfare theoretic system(Crawford School of Public Policy, The Australian National University, 2021-02) Sinstead-Reid, A.In philosophy, theories of welfare's nature abound. One of these is Canadian moral philosopher L.W. Sumner's (subjective) 'happiness theory of welfare', which he argues in his 1996 book "Welfare, Happiness, and Ethics' (or "WHE' for short) is "the best available - about the nature of welfare" (WHE, 184). Since its publication, S.umner's theory of welfare has attracted a range of criticisms, such that it is now widely (though I would argue wrongly) regarded as falling well short of being "the best available". This paper contends that criticisms of Sumner's 'happiness theory of welfare' misinterpret or misunderstand the welfare theoretic system presented in WHE (explicated here in terms of that system's implicit as well as explicit details). The totality of the implicit and explicit details of Sumner's welfare theoretic system is 'what Sumner's really saying in WHE' about welfare's nature, which is more detailed and 'determined' than is currently appreciated in the philosophical literature. This paper lays the groundwork for a reappraisal (in a follow-up paper) of Sumner's 'happiness theory of welfare' as a viable candidate for "the best available theory" of welfare's nature.Publication Open Access Determining gender budgeting in multi-level federalism(Crawford School of Public Policy, The Australian National University, 2020-03) Chakraborty, L.; Nayyar, V.; Jain, K.Gender budgeting is a public policy innovation intended to transform governments' objectives to women's empowerment into budgetary commitments. In the multi-level fiscal federalism in India, the political economy process of gender budgeting in India has involved four distinct phases - innovative knowledge networking, building institutional structures, reinforcing state capacity and strengthening the accountability mechanisms, at national and subnational levels. Against these policy processes, we have estimated the sector-wise quantum of gender budgeting in India emphasising the statistical invisibility of the care economy. The State-wise equally distributed equivalent (Xede) estimates of gender development showed that the state of Kerala tops the scale 0-1 scoring 0.72. Though the link between gender budgeting and these Xede scores is beyond the scope of the paper, the fiscal marksmanship (the deviation between what is budgeted and the actual spending) of gender budgeting showed a mixed scenario across sectors.Publication Open Access Risky data: The combined effect of framing, trust and risk preferences on the intended participation in the Consumer Data Right(Crawford School of Public Policy, The Australian National University, 2019-04) Biddle, N.; Marasinghe, D.The Consumer Data Right (CDR), which began in Australian on the 1st of July 2019, aims to give Australian customers a right to access data about them held by businesses, and also to share this information with accredited and trusted third parties of their choice. This enhanced flow of information in the economy is designed to benefit consumers by improving their ability to compare and switch between products and services. The policy also aims to increase the effectiveness of relevant markets. In this paper we examine the effects of framing and behavioural preferences on the willingness to use the CDR. This analysis was conducted in two steps. First, we examine the pure effects of loss and gain framing on the willingness to use the CDR. In the second step, we examine the joint effects of framing and trust/behavioural preferences on the decision to use the CDR. We find significant effects for both positive and negative framing (compared to neutral framing) with the effects varying based on the person's level of trust in government and risk preference. We conclude with implications for this particular policy initiative, as well as with other policy initiatives that involve significant risk of data privacy breaches.Publication Metadata only Australia's high company tax rate and dividend imputation: a poor recipe for a small open economy?(Crawford School of Public Policy, The Australian National University, 2018-02) Murphy, C.By international standards, Australia's business tax system combines a high company tax rate of 30 per cent with low taxation of domestic investors through dividend imputation. This prioritising of domestic investors over foreign investors is at odds with the evidence in this paper that the marginal investor is foreign. Better aligning Australia's business tax system with international practice would encourage business investment, reduce tax avoidance and reduce the riskiness of national income. This paper assesses the evidence on the size of these three effects and models the consumer benefits of better aligning the Australian business tax system with international practice.Publication Open Access Australia's company tax: options for fiscally sustainable reform(Crawford School of Public Policy, The Australian National University, 2017-04) Ingles, David; Stewart, M.The Australian Government proposes to reduce the company tax rate from 30 to 25 per cent. However, there are widespread concerns that the fiscal cost is not affordable. This paper considers alternative reforms of corporate taxation that could fund a corporate tax rate cut, while addressing key non-neutralities in the corporate tax system in an international context. We examine the case for abolition of dividend imputation in favour of a lower headline company tax rate and consider the spectrum of reform options for the corporate tax base, which ranges from the cash flow tax and allowance for corporate equity or capital to a comprehensive business income tax which would eliminate interest deductibility. These measures (which could co-exist in a hybrid system) might be accompanied by discounts on dividend and interest income at the personal level, in replacement of dividend imputation.Publication Open Access The Petroleum Resource Rent Tax: overview of primary documents and literature leading to the 1987 legislation(Crawford School of Public Policy, The Australian National University, 2016-04) Kraal, DianeNewly available archival documents give insight into the Hawke Government (1983-1991) political and consultative processes, which resulted in the Australia's Petroleum Resource Rent Tax Assessment Act 1987 (Cth). The recently unpacked private papers from 1984 of Dr Craig Emerson (a Ministerial economic advisor at the time of petroleum tax reform) provide a unique perspective into the consultative process via hand-written files, draft reports with annotations, and personal observations. Further, relevant files from the National Archives of Australia reveal the government's petroleum tax reform discussion papers, Media statements, industry responses to the tax, Comparative tax modelling and the records of consultative meetings from 1984. This paper draws on these new files to provide a brief narrative and identify the dominant stakeholders in the route to petroleum tax reform for a later more detailed enquiry by the author into the roles of key persons in the progression of resource policy to legislation. This paper is the result of preliminary research into government archival files, which have just been released, at the request of the author. Thus the archival files, as well as the Emerson files, have been accessed for the first time.Publication Open Access Towards an estimate of Aboriginal and Torres Strait Islander human capital and how it is changing over time(Crawford School of Public Policy, The Australian National University, 2024-03) Biddle, N.Public policy in Australia has historically failed to provide the supports and infrastructure for the Aboriginal and Torres Strait Islander population to engage in formal education in a way which meets the needs and aspirations of the population. This includes early childhood, S.chool, and postschool education. For this reason, Human Capital development including but not limited to school completion and post-school attainment has been less than equitable, leading to worse outcomes by standard measures (income, Employment, and health) and also by Indigenous-specific measures that Aboriginal and Torres Strait Islander Australians have cause to value (including access to land, language, and culture). Over recent years, there has been substantial improvement in the level of education completion for the Aboriginal and Torres Strait Islander population, although the measurement of this change is complicated by changing patterns of identification and location. The aim of this paper is to use publicly available data to measure the level of Aboriginal and Torres Strait Islander Human Capital and document how it is changing through time. The process of this measurement involves estimating the level of education, Calculating the economic returns to that education, and then comparing lifetime income streams for different levels of education. Through this process, the paper highlights that the level of Human Capital for the Aboriginal and Torres Strait Islander has increased substantially in the decade between 2011 and 2021, is higher per working age adult for males than females (by a ratio of 1.17 in 2021), and is substantially higher for the non-Indigenous population than for the Aboriginal and Torres Strait Islander population (1.69 times higher for males and 1.59 times higher for females in 2021). At the end of the paper, I discuss how the method can be applied on slightly different data to extend our understanding, as well as the implications of the findings for understanding the education decisions of Australia's First Nations population.Publication Open Access The role of economic analysis in resolving uncertainties in the source concept and the arm's length principle(Crawford School of Public Policy, The Australian National University, 2023-03) Killaly, J.The 2015 OECD review of its transfer pricing guidance was in part focussed on the need to align transfer pricing outcomes with value creation, a process that was based on open market benchmarking and an examination of the economic functions performed, assets used and risks assumed by the parties. In broad terms this can be described as a further elaboration of "the arm's length principle", which the paper explores and contrasts with global formulary apportionment which some still advocate as the preferred approach to the taxation of multinational enterprises. The approach of Australian courts, E.vident in the High Court decisions in Nathan's Case and the United Aircraft Corporation Case has been to determine the source of income on the basis of a legal analysis of the facts and circumstances of each individual case, a process that gave significant weight to the legal arrangements put in place between the parties and gave little if any weight to economic and accounting analysis. This paper explores the impacts of these different approaches and the implications they have for the taxation aspects of trade and investment relations between Australia and its tax treaty partners. In particular the paper explores their implications in terms of providing workable certainty to support those relations and the taxation rules that apply to theM The paper also discusses the application of Australia's transfer pricing rules as articulated in Subdivision 815-B of the Income Tax Assessment Act 1997 and Article 9 of Australia's double taxation agreements, the relationship between them, and whether they achieve the necessary workable certainty.Publication Open Access Tax knowledge and tax manipulation: A unifying model(Crawford School of Public Policy, The Australian National University, 2022-03) Craig, A.; Slemrod, J.We provide a unified analysis of taxation and taxpayer education when individuals have an incomplete understanding of a complex tax system The analysis is independent of whether income is earned legitimately, Or by avoiding or evading taxes. In this sense, learning about tax minimization strategies (tax manipulation) is isomorphic to learning about tax rates. The government in our model balances a trade-off: A better understanding of the tax system potentially allows taxpayers to optimize more effectively, but also affects government revenue. Optimal taxpayer education and the optimal amount of redistribution can both be characterized by aggregate sufficient statistics, which do not require information about how biases or behavioral responses vary across the decision margins. We provide similarly simple rules for how tax rates on different income-generating activities should be set relative to each other.Publication Open Access Using census, Social security and tax data from the Multi-Agency Data Integration Project (MADIP) to impute the complete Australian income distribution(Crawford School of Public Policy, The Australian National University, 2021-02) Biddle, N.; Marasinghe, D.The distribution of income, income dynamics and how observable characteristics predict an individual's position on the income distribution are all core aspects of economics and social science research, and of keen interest to policy makers. Researchers approach these topics using a combination of cross-sectional surveys, panel studies, and administrative datasets. In Australia, all three types of datasets have been used historically to help answer such questions, without any one individual dataset being without limitations in terms of sample size, sample representation, quality of income data, Or longitudinal availability. A relatively new dataset - the Multi-Agency Data Integration Partnership (MADIP) Basic Longitudinal Extra (BLE) - has the potential to extend our knowledge of income in Australia by combining income-related data from a targeted survey (the 2011 or 2016 Censuses of Population and Housing), income tax records at the individual level, and information on access to social security. As individual datasets, there are limits of each. However, O.ne way to overcome the limitations of the individual datasets on the MADIP BLE is to combine them to create a synthetic income measure for each individual. For 2011, this is a relatively straightforward exercise, as there are three sources of information for each individual. For the other years though, there are only two sources of information - PIT and SSRI. To overcome this limitation, we borrow information from the first wave of data (2011) to help estimate income for the remaining years (2012-16). After testing nine machine-learning approaches using a training and test dataset from the MADIP BLE 2011, we were able to generate a synthetic income measure that performed far better than either tax or census data alone in matching the HILDA income distribution, and was also able to capture income dynamics reasonably well, albeit with some understating of income dynamics. This new synthetic income data is available for further analysis for over 15 million individuals, Compared to only around 17,000 for HILDA and even less for other sample surveys.Publication Open Access The Glencore Case: Transfer pricing and the world of possibilities(Crawford School of Public Policy, The Australian National University, 2020-03) Killaly, J.The important and contentious Glencore Case breaks new ground in the application of Australia's transfer pricing rules to an integrated global business, particularly in framing how the rules take into account business and market risks impacting on such a business. In applying the "arm's length principle" the Court restricted the search for comparables to cases where independent parties had used the same type of pricing structure as was imposed by the Swiss parent, despite an alternative market-related pricing structure that was a more attractive commercially rational option. The Court also analysed the financial circumstances and risk exposure of the Australian miner in isolation from the integrated business and multinational group of which it was part. The taxpayer's rationale was that the new pricing structure removed the risk of volatility between treatment and refining costs and copper prices. For the reasons set out in the paper, it did not reduce the volatility risk exposure for the integrated business, and had no real world impact beyond its natural and probable consequences: the reduction of the taxable sales revenue of the Australian miner and a corresponding increase in the profits of the Swiss parent company. Should the Commissioner be unsuccessful on appeal, there are good public policy grounds for a law change given the scope for tax avoidance created by the decision.Publication Open Access Do payroll tax cuts for Australian firms affect their use of capital and labor?(Crawford School of Public Policy, The Australian National University, 2019-03) Majeed, O.; Sinning, M.This paper studies the effects of increases in payroll tax thresholds on wages, Employment and capital expenditure in Australia. We use data from the Business Longitudinal Analysis Data Environment (BLADE) and employ a difference-in-differences approach to determine the effect of state-level changes in payroll tax thresholds. Our findings indicate that the effects of numerous increases in state-level payroll tax thresholds between 2006 and 2015, which reduced tax rates from around six to zero percent for small businesses, were insignificant. Our estimates provide no evidence in favor of the hypothesis that a lower payroll tax burden increases wages, Employment or capital expenditure. Our results are robust with regards to a range of Placebo tests and sample restrictions.Publication Open Access Social Policy Inquiries in Australia: The Henderson Poverty Inquiry in Context(Crawford School of Public Policy, The Australian National University, 2018-02) Regan, S.; Stanton, D.This paper situates the Henderson Poverty Inquiry in the context of other social security reviews occurring at the time and subsequently. Insights are drawn on the influence of these inquiries by exploring their characteristics, activities and findings and by reflecting on ensuing policy change. The analysis suggests that inquiries make diverse policy contributions across at least three dimensions: nature (inquiries contribute in different ways) extent (inquiries make different degrees of contribution) and temporality (some contribute in the short terM others exhibit a slow burn over many decades). With respect to the Henderson Poverty Inquiry, its contribution included influencing immediate policy change as well as providing an evidence base and strategic approach of value to subsequent policy development and inquiry activity. Its contribution was significant and enduring. This paper concludes by reflecting that wide-ranging social security inquiries have been very rare. Arguably, the last inquiry with breadth was the Henderson Poverty Inquiry. When considered in light of the extensive piecemeal reform of the social security system that has occurred over recent decades, this suggests a comprehensive and integrated review of social security policy in Australia is long overdue.Publication Open Access Modelling Australian corporate tax reforms(Crawford School of Public Policy, The Australian National University, 2017-04) Murphy, C.As a small open economy, Australia can expect that foreign investors will add our corporate tax burden to the hurdle rate of return that they require to invest here, rather than absorb it. This discourages foreign investment and leaves local labour to bear the final burden of local corporate tax, discouraging labour supply. This double disincentive effect led Gordon (1986) to recommend against applying corporate tax in a small open economy. More recently, international profit shifting has added to the case against corporate tax (Auerbach, Devereux, Keen and Vella, 2017). Australia further undermines the efficiency of corporate tax as a revenue raiser by returning a substantial portion of the revenue through the dividend imputation system (Fuest and Huber, 2000). At the same time, Corporate tax can be efficiently applied to the returns from immobile assets such as land, Minerals and local market power, leading to calls to narrow the corporate tax base to only capture such economic rents (Boadway and Bruce, 1984). Using economy-wide modelling, this paper quantifies the substantial consumer benefits from tax reforms that reduce the corporate tax rate, narrow the base to economic rents, Or replace imputation with less generous dividend tax concessions. The substantial benefits of reducing the local tax rate increase if the US makes the corporate tax changes proposed by the Trump administration.Publication Open Access Determinants of the economic outcomes of Australian permanent migrants(Crawford School of Public Policy, The Australian National University, 2024-02) Varela, Peter; Breunig, R.This paper uses administrative tax and visa data to better understand the factors that predict the economic success of Australian permanent migrants. We show that the economic success of migrants defies simple explanation, with Education, English language skills, occupation, demographics, visa characteristics, temporary visa history and country of birth all playing important roles in explaining employment and earnings outcomes. We use Oaxaca-Blinder analysis to understand the extent to which the difference in economic outcomes across groups of migrants (such as the Skilled, Family and Humanitarian streams) can be explained by observable migrant characteristics (such as education and English language skills). The degree to which outcomes are explained by observable versus unobservable characteristics varies substantially by visa stream and country of birth. We show that migrant integration patterns continue over decades. Shorter-term measures of economic success will overstate the differences in outcomes between migrant groups. Finally, we conduct Oaxaca-Blinder analysis based on the nominated income of employer-sponsored migrants. Nominated income is a better predictor of realised income than a mincer regression based on observable characteristics and is a particularly strong predictor of income for the highest earning migrants.Publication Open Access Female board representation and corporate performance: A review and new estimates for Australia(Crawford School of Public Policy, The Australian National University, 2023-03) Bayly, N.; Breunig, R.; Wokker, C.Recent years have seen increased interest in the effect of female board members on firm performance. Despite a conventional wisdom that female board members positively impact firm performance, a thorough examination of the research to date reveals no consensus that female board members have either a positive or negative effect on firm performance. We build the largest dataset of Australian board appointments assembled to date. We use our data to demonstrate how difficult it is to replicate existing research, with one example from Australia and one from the US. Using event studies and regression analyses we demonstrate that there is little evidence that female board representation affects firm performance.