Edith Cowan University, Research Online, Perth, Western Australia
Abstract
The Australian tax reform in July 2000 gave heavier weights to consumption tax in the tax mix at the expense of the income tax. This paper shows that the trade off among the tax-mix policy parameters depends on the structure of the economy. Given that the reform is tax-revenue neutral and no change in monetary stance, a rise in the share of consumption tax in the tax mix may increase the effectiveness of government spending in stabilising the economy if certain contain is fulfilled. A numerical example is included for illustration purpose
