Melbourne Institute Working Paper Series Database (1984 - 2010)

Melbourne Institute Working Paper No. 28/2003

The Role of the Unit of Analysis in Tax Policy Reform Evaluations

by

John Creedy and Rosanna Scutella

Date: December 2003

Abstract: This paper examines the implications, for overall social welfare and inequality comparisons, of using different definitions of the unit of analysis - the income recipient - in computing summary measures. Comparisons are made using the Melbourne Institute Tax and Transfer Simulator (MITTS), a simulation model of the Australian direct tax and benefit system, of the effects of flattening the marginal tax rate structure. The reform was found to reduce inequality in all cases. However, it was not always judged to improve social welfare, depending on the degree of inequality aversion and the type of income unit chosen.

 

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