Modelling the Labour Supply Effects of a Negative Income Tax for Australia, and its Equity and Efficiency Implications

The Australian income tax and transfer system has many means-tested benefits which can cause negative effects on labour supply behaviour, by creating high marginal tax rates on lower incomes. The aim is to investigate the implications for individual households of moving towards a transfer system that has a basic income, without means-testing, and a flatter income tax rate structure. The effects of alternative reforms on labour supply and inequality will be investigated. This involves the estimation of preferences (regarding consumption and leisure) allowing for individual heterogeneity. The parameters will be used in a new behavioural micro-simulation model.

ARC Large Grant, 2000-2001.