Inefficient at any level: a comparative efficiency argument for elimination of property transfer duties and insurance taxes

Abstract

Excess burden refers to the economic cost of taxation beyond the revenue it raises. Past reviews of Australia’s tax system have ranked taxes by excess burden estimates at current revenue raising efforts. This paper extends that analysis by exploring the optimal tax mix, which necessarily involves departing from current revenue raising structures. We examine how the excess burdens of four Australian taxes change with varying revenue-to-GDP ratios. Using an economy-wide model with high levels of tax-specific detail, we show that transfer duties and insurance taxes remain highly inefficient even at low levels, strengthening the case for their replacement with more efficient taxes.