Treasury publishes five new Working Papers

The Treasury published five new Working Papers today, covering analysis of making food GST-free, labour supply, wages, migration, and housing.

• Food Expenditure and GST in New Zealand (WP 14/07) was written by Christopher Ball, John Creedy and Michael Ryan. This paper analyses the effects of zero-rating food in a goods and services tax. First, the poor targeting of a policy of zero-rating food is illustrated in a simple model where the revenue lost from zero-rating food is instead devoted to a universal transfer payment, with a larger effect on progressivity. Second, the paper investigates the welfare effects on New Zealand households of zero-rating food, for a range of household types. The analysis supports earlier studies suggesting that indirect tax exemptions and zero-rating provide a poor redistributive instrument compared with the use of direct taxes and transfers.
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• Estimation of Labour Supply in New Zealand (WP 14/08) was written by Joseph Mercante and Penny Mok. The paper finds the preference for work is significantly higher for partnered women with higher education, lower for those with more children, and lower for those with a youngest child between 0 and 3 years of age. The impact of children is not significant for partnered men. The preference for work for single men seems to be slightly different from single women. However when taking account of single men living with parents, it is found that their preference for work is also higher with higher education levels. The preference for work for single parents has been increasing over time, and is lower for single parents with more children. Single parents living with their parents tend to increase their preferences for work, indicating the possibility of obtaining childcare from their parents, although the effect is not significant.
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• Estimation of Wage Equations for New Zealand (WP 14/09) was written by Joseph Mercante and Penny Mok. This paper estimates wage equations based on pooled data from the Household Economic Survey from 2006/7 to 2010/11. Equations are estimated separately for couple men and women, single men and women, and sole parents. In estimating the wage equations the authors take account of education, ethnicity, geography and industry and occupation. They also take account of the trend in wages over time and the business cycle by including controls for the unemployment rate and a time trend variable. The paper finds that wage rates are positively related to age, education and experience but the wage rates are generally lower for non-Europeans and for people living outside Auckland.
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• Migration and Macroeconomic Performance in New Zealand: Theory and Evidence (WP 14/10) was written by Julie Fry. The paper considers a large number of the potential effects of immigration on the New Zealand macroeconomy. It concludes that the evidence points to modest positive effects from immigration in the labour market, on agglomeration and connectedness, and by mitigating the effects of population ageing. It also concludes that immigration has likely had moderate negative effects on the housing market, and may plausibly have contributed to New Zealand’s persistently high exchange and interest rates, although this isn’t established empirically. However, the author emphasises that the overall impacts of migration on the New Zealand macroeconomy are uncertain, and cautions against using the paper’s findings to determine migration policy.
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• Housing Affordability: Lessons from the United States (WP 14/11) was written by Mark Skidmore. This paper compares and contrasts New Zealand housing trends and policies with those of the United States. The paper summarises lessons learned from the United States and highlights data needs and research questions that may require further consideration in order to better understand housing markets in New Zealand.
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