The high taxation of working families

Patricia Apps, University of Sydney


This paper reports the findings of an empirical analysis of the tax treatment of families. The results show that, after two decades of reform, the Australian family tax system now closely approximates one based on the combined income of parents rather than on individual incomes. The study also shows how the effective rate scale that now applies is no longer progressive but tends to exhibit an inverted U-shape, with very high rates on below average incomes. An important distributional effect of switching to the new system has been to shift the tax burden disproportionately towards low and middle-wage families working longer hours by having a second earner. The paper presents empirical evidence on the negative effects of the new rate structure on female labour supply, household saving, and fertility. The results suggest that two decades of tax reform and government neglect of child care have contributed to population ageing and restricted the growth of the tax base needed to avoid an ageing crisis.

Patricia Apps <> is Professor in Public Economics in the Faculty of Law at the University of Sydney and a Visiting Fellow of the Economics Program in the Research School of Social Sciences at the Australian National University. Her research has been published in the Journal of Political Economy, Labour Economics, and the Journal of Public Economics.

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