The Benefits and Problems of Linking Micro and Macro Models: Evidence from a Flat Tax Analysis
AbstractMicrosimulation (MS) and Computable General Equilibrium models (CGE) have both been widely used in policy analysis. Their combination allows the utilisation of the advantages of both types. The aim of this paper is to describe the state-of-the-art in simulation analysis and to illustrate the benefits and problems of linking micro and macro models by analysing flat tax reform proposals for Germany. Taking feedback effects into account has important implications for the evaluation of tax reforms. The analysis shows that a personal income flat tax can indeed overcome the fundamental equity efficiency trade-off while simultaneously increasing the tax revenue. However, this result does not hold for a flat tax combining a personal income flat tax with a corporate cash flow flat tax, even when allowing for an ex-post loss in revenue as the top of the distribution still gains the most.
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Bibliographic InfoPaper provided by DIW Berlin, The German Socio-Economic Panel (SOEP) in its series SOEPpapers on Multidisciplinary Panel Data Research with number 182.
Length: 27 p.
Date of creation: 2009
Date of revision:
Microsimulation; CGE; linked micro macro models; flat tax;
Other versions of this item:
- Andreas Peichl, 2009. "The benefits and problems of linking micro and macromodels - Evidence from a flat tax analysis," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 301-329, November.
- D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
- J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
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