On that note, did you see the new Saez paper on inheritance tax. Looks interesting, only been able to spot the abstract on my phone while briefly in Hamilton though.

I did read Diamond, and that paper was poor, and very partial – disappointing coming from two economists I highly respect

Indeed. If you want to subsidise children, just frikken subsidise children.

“If we want to give people an income transfer, why would we want to do it for only people who are in employment?”

You mean like Working for Families? 🙂

Hey Bill,

I don’t disagree with that in an operation sense – and that is very much what IRD does in a practical sense at present.

But this is a typical implementation issue – a tax free threshold at a low level is irrelevant to it. If we turned around and added a tax free threshold, this is equivalent to giving everyone who is working a direct income transfer … and as a result, we need higher EMTR’s for the same ATR … which has a negative economic impact.

If we want to give people an income transfer, why would we want to do it for only people who are in employment? Not only is it random and indirect, it appears to be unfair.

In an economist sense maybe.

One argument used in countries where there are tax free allowances is that it frees up tax authorities from collecting lots of small amounts – which is highly inefficient in a different way.

I saw one news story in Australia saying it costs $X to process a single tax return. Eliminating all tax returns below a certain threshold means each tax payer contributes a positive amount to the total tax take.

Also, the total number of negative net tax contributors is far higher than you might imagine – large numbers of young people might only earn a few thousand a year. Taking them out of the tax system means far fewer tax collectors, which also increases efficiency.