Decomposing the Marginal Excess Burden of Australia’s Goods and Services Tax

We estimate the marginal excess burden of the GST and its components. Our results show that the GST is highly distortionary in its treatment of intermediate inputs and investment, but is efficient as applied to household consumption. We also estimate the general equilibrium effects of changes to the GST base and rate, and its removal from investment. The general equilibrium estimates support the marginal excess burden estimates. Our results suggest that the efficiency of the GST could be improved by broadening the consumption base or removing it from investment. Simply increasing the GST rate would be welfare decreasing.