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Payroll Taxes: Thresholds, Firm Sizes, Dead‐weight Losses and Commonwealth Grants Commission Funding *
Author(s) -
DIXON PETER B.,
PICTON MARK R.,
RIMMER MAUREEN T.
Publication year - 2004
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.2004.00189.x
Subject(s) - payroll , monopolistic competition , payroll tax , commonwealth , commission , economics , competition (biology) , labour economics , parliament , monetary economics , business , monopoly , public economics , microeconomics , finance , law , accounting , income tax , political science , ecology , biology , politics
Payroll‐tax thresholds make firms smaller than they would otherwise be and concentrate firms at just below threshold employment. We estimate the resulting dead‐weight losses under perfect and monopolistic competition. Under monopolistic competition, the threshold‐induced dead‐weight loss in Victoria is approximately 10 per cent of payroll‐tax collections over a wide range of threshold levels. Because payroll‐tax design affects the size distribution of firms, it also affects the Commonwealth Grants Commission's assessment of a State's capacity to generate payroll taxes. This violates a principle of the Commonwealth Grants Commission that its grant to a State be independent of the State's policies.