Duality Theory for Variable Costs in Joint Production

Duality methods for incomplete systems of consumer demand equations are adapted to the dual structure of variable cost functions in joint production. This allows the identification of necessary and sufficient restrictions on technology and cost so that the conditional factor demands can be written as functions of input prices, fixed inputs, and cost. These are observable when the variable inputs are chosen and committed to production, hence the identified restrictions allow ex ante conditional demands to be studied using observable data. This class of production technologies is consistent with all von Neumann-Morgenstern utility functions when ex post production is uncertain.Joint production, variable cost, duality theory

The Generalized Quadratic Expenditure System

This chapter presents the indirect preferences for all full rank Gorman and Lewbel demand systems. Each member in this class of demand models is a Generalized Quadratic Expenditure System (GQES). This representation allows applied researchers to choose a small number of price indices and a function of income to specify any exactly aggregable demand system, without the need to revisit the questions of integrability of the demand equations or the implied form and structure of indirect preferences. This characterization also allows for the calculation of exact welfare measures for consumers, either in the aggregate or for specific classes of individuals, and other valuations of interest to applied researchers.Aggregation, demand systems, functional form, integrability, rank

Small business taxation:an evaluation of the role of special treatment policies

In many countries small businesses expect and generally receive special treatment, concessions or arrangements regarding taxation compared with medium and large business. Such policies are based primarily upon the role and importance of small business in economic growth and especially job creation, and the high administrative and compliance costs of including a large number of small entities in the tax system. This paper focuses on the latter aspect, using examples and data from various countries in the world, particularly the UK, USA, New Zealand and Australia. The arguments for special treatment seem compelling, particularly lower administrative and compliance costs, although difficulties usually arise at the margin or threshold where the special treatment ends. However, an often neglected argument is that small business often engage in high levels of tax evasion, based on the so-called ?cash economy?, an opportunity generally denied to large business (at least domestically). It can be argued that benefits arising from evasion roughly approximate to the higher compliance costs endured by small business, particularly for income taxation. This paper evaluates this argument and the extent that special treatment taxation arrangements of small business are warranted. The conclusion sums up the experiences of the countries considered, the key policy implications, the limitations of the analysis, and indicates areas for further research

Personal income tax reform: consensus, outliers, specifics and some sensitive issues

The case for significant Australian Personal Tax ("PIT") reform is overwhelming, as argued by (at least) eleven substantive business, professional and academic research reports and papers in the past few years, including work by this author. Essentially there is broad consensus for company and PIT rate alignment (or equalisation) at 30 per cent and associated simplificatio measures. Although strongly argued by this author and several other academics, there is generally little support for a substanitally increased tax-free threshold. in a revenue neutral analysis, this author has earlier suggested that significant PIT reform necessitates a higher Goods and Services Tax ("GST") rate of 15 per cent. Both proposals are outliers. This paper builds upon this analysis and emphasises the key factors that significant PIT reform would entail, such as the abolition of Work-Related Expenses, other deductions and offsets, the introduction of withholding taxes and much greater use of technological solutions. The final part of the paper considers several sensitive issues that need to be considered before undertaking significant PIT reform, including negative gearing and inter-generational distribution. The auther concludes by emphasising the key issues and challenges facing this complex Australian PIT reform debate, including the importance of substanitally reducing the number of PIT filers

Reform of the personal income tax system in Australia

This paper examines the case for reform of Australia's Personal Income Tax (PIT), argues that it is outdated, and demonstrates a growing consensus for reform. The importance of tax avoidance, particularly the use of trusts, in the Australian PIT system, and arguably its abrogation of modern-day criteria of what constitutes a 'good tax', is emphasised. Three possible 'reform' options are identified: the 'tinkering and tokenism' approach of current Government policy; moderate reform and a proposed 'significant reform option' costing around $22 billion. Essentially this comprises company and top PIT rate equalisation and a doubling of the tax-free threshold. But funding this is problematical. Two key arguments of the paper are that: (real) simplification i.e. lower compliance costs, is an important yet usually down-played objective in reform proposals; savings from reform denying PIT deductions such as work expenses are insufficient to achieve significant PIT reform. An increase in the rate of the Goods and Services Tax (GST) from 10% to 15% (with a compensation package) is therefore advocated in a revenue-neutral analysis ignoring current Government budget surpluses. The overall outcome would be a simplified, more equitable and incentive-driven PIT system that would move Australia closer to the PIT and GST policies of other OECD countries. But the political difficulties of reform mean that the Government's 'tinkering' approach is likely to continue

Money illusion, Gorman and Lau

Any demand equation satisfying Lau’s (1982) Fundamental Theorem of Exact Aggregation and is 0 homogeneous in prices and income will have a Gorman (1981) functional form for each income term. This property does not depend on symmetry or adding up. The implications of this result are illustrated by an extensive example.Demand, exact aggregation, functional form, homogeneity

Improving opportunities and equity in home ownership through the tax system

Housing affordability and equity within the housing sector is currently subject to a high level of media coverage and political debate. The controversy centres on difficulties for young households trying to purchase their first house at a time when the wealth of many home owners has grown dramatically with rising house prices. Despite the media attention, there is relatively little recent research into addressing the growing inequity in housing wealth. This paper seeks to redress this imbalance. Current taxation and tax expenditures on housing in Australia are succinctly reviewed, followed by discussion of the so-called ?crisis? in housing affordability and the various measures that have been proposed and/or implemented to date. The main parts of the paper present proposals for a taxation offset for first time home buyers and the application of capital gains tax to higher valued owner-occupied housing. Initial estimates of the overall net tax revenue implications of the combined proposals are presented, and show that after five years the overall package is about revenue neutral. This compares well with the current high transparent and hidden subsidies to all sectors of the Australian housing market. The main challenges in implementation are considered, followed by some concluding comments and suggestions for further analysis

The tax compliance costs of large corporate taxpayers in Indonesia

This article reports the results of the first research on the compliance costs of large corporate taxpayers in Indonesia in 2010. Using a mail survey of 3,000 questionnaires with a response rate of 8.2%, the main finding is that the gross costs of compliance for large taxpayers are significant, estimated to be IDR 12.3 trillion, and account for3.16% of tax revenue for large corporations and 0.19% of the Gross Domestic Product in 2010. Overall average costs per large company are IDR420,933,442 (aroundA$55,000 at the December 2010 exchange rate). Average costs differ markedly across the various economic sectors. The majority of the costs are incurred on human resources in the companies (staff, managers, directors). The research shows that costs are regressive in terms of the number of employees, the amount of total assets, the annual turnover, and the tax payments. The components of compliance costs are broken down into: routine and non-routine costs 86% and 14%, internal and external costs 73% and 27%, computational costs and planning costs 73% and27%, respectively. Cash flow benefits and tax deductibility benefits, both being offsets of gross costs, represent 24% and 25% of gross compliance costs respectively. The article concludes by succinctly setting this timely research in an international context, identifying its limitations and discussing the study’s significance for Indonesian tax policy, with a recommendation for further work in the tax compliance costs field

International taxation of multinational enterprises (MNEs)

MNEs are likely to continue to grow because of factors such as globalisation and electronic commerce. Many countries are reforming their international tax systems in order to attract MNEs into their jurisdictions to do business within their borders and also to promote overseas growth of their resident corporations. Issues such as taxation of electronic commerce, transfer pricing and harmful tax competition need to be addressed. Practical solutions for the future can include: a model convention for the taxation of MNEs; unitary accounting for MNEs; a multilateral treaty; or a global system of registration of MNEs

Tax compliance costs of small and medium enterprises in Malaysia: policy implications

Tax compliance costs often fall heavily on small and medium enterprises (SMEs). The international tax literature exhibits a similar pattern of fixed costs effect whether measured for a specific tax or overall business taxes. In Malaysia, the government SME focus is often restricted to general business and finance-related issues. However, the issue of the tax compliance burden is yet to materialise explicitly. This paper discusses this SME tax compliance burden, relevant international and Malaysian compliance cost estimates and challenges for Malaysian SMEs. The paper concludes by indicating the tax policy challenges facing the government, particularly for SMEs