New Working Papers on Discount Rates and Income Taxation

The Treasury has published two new Working Papers on public sector discount rates and the marginal welfare cost of personal income taxation.

Public Sector Discount Rates: A Comparison of Alternative Approaches was written by John Creedy and Hemant Passi. This paper sets out the alternative approaches to the public sector discount rate and explains the assumptions involved. It concludes that there is no completely objective way of determining public sector discount rates. Essentially the discount rate reflects how the government values the future when making decisions on behalf of society: value judgements and assumptions are necessary. The paper aims to clarify these judgements.

The Marginal Welfare Cost of Personal Income Taxation in New Zealand was written by John Creedy and Penny Mok. The paper reports estimates of welfare changes and the marginal welfare cost of income taxation for a wide range of income and demographic groups in New Zealand, in the context of uniform increase in all marginal income tax rates. Considerable variation is found in the marginal welfare costs for different groups, with an overall value of 12 cents per extra dollar raised.

Working Papers can be viewed on the Treasury website at http://www.treasury.govt.nz/publications/research-policy/wp.

The views, opinions, findings, and conclusions or recommendations expressed in Treasury Working Papers are strictly those of the authors and do not necessarily reflect the views of the New Zealand Treasury or the New Zealand Government.

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