Progressivity of the commonwealth personal income tax, 1917-1997

Abstract

This article estimates the degree of personal income tax progressivity in Australia since 1916-17 and identifies possible causes of changes in progressivity through time. Three summary measures of tax progressivity are estimated and compared, and the validity of applying such tools to historical data is assessed for Commonwealth personal income tax for the period 1917 to 1997. The analysis reveals a striking post-World War II decline in personal income tax progressivity, although the higher average tax rate maintained its overall redistributional effect until the late 1970s. By contrast sharp fluctuations around a stable long-term trend in tax progressivity occurred during the Depression and World War II. While the pattern of the earlier years mainly reflected legislative action, the post-war decline in progressivity appears to have resulted from tax policy inertia in the face of inflation and real income growth.