How raising tax for high-income earners would reduce inequality, improve social welfare in New Zealand

Abstract

If we asked people in New Zealand what they think the best income tax reform would be, we would expect a range of responses. People will no doubt have different views about which of the four income tax rates and corresponding income thresholds should be lowered or increased. In our new study, we examine how tax rates should be changed to improve social welfare in New Zealand. At 33%, the current highest marginal income tax rate in New Zealand is relatively low compared to other major advanced economies. For instance, it’s 45% in both the UK and Australia. We find that, under a range of assumptions, lifting the highest income tax rate and using the proceeds to lower one of the two lowest t..