Work Incentives under a New Tax System: The Distribution of Effective Marginal Tax Rates in 2002

Abstract

Effective marginal tax rates (EMTRs) provide a way of measuring the balance between targeting of welfare payments and the financial incentive to work. High EMTRs result from income tests for welfare payments overlapping with each other and/or the income tax system. Individuals who face high EMTRs over broad ranges of income have little financial incentive to increase their earned income. This paper examines the distribution of EMTRs across the Australian labour force in 2002. It also looks at how the number of people facing high EMTRs has changed since the introduction of the new tax system.

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