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A Macro and Microeconomic Integrated Approach to Assessing the Effects of Public Policies

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  • Xavier Labandeira

    (rede and Department of Applied Economics (Universidade de Vigo))

  • José M. Labeaga

    (FEDEA and Department of Economic Analysis II (UNED))

  • Miguel Rodríguez

    (rede and Department of Applied Economics (Universidade de Vigo))

Abstract

Most public policies have not only efficiency but also distributional effects. However, there is a kind of trade-off between modeling approaches suitable for calculating each one of these impacts on the economy. For the former, most of the studies have been conducted with general equilibrium models, whereas partial equilibrium models represent the main approach for distributional analysis. This paper proposes a methodology which enables us to carry out an analysis of the distributional and efficiency consequences of public policies. In order to do so, we have integrated a microeconomic household demand model and a computable general equilibrium model for the Spanish economy. We illustrate the advantages of this approach by simulating a revenue-neutral reform in Spanish indirect taxation, with a reduction of VAT and a simultaneous increase of energy taxes. The results show that the reform brings about significant efficiency and distributional effects, in some cases counterintuitive, and demonstrate the academic and social utility of this approximation.

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File URL: http://www.ecineq.org/milano/WP/ECINEQ2006-22.pdf
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Bibliographic Info

Paper provided by ECINEQ, Society for the Study of Economic Inequality in its series Working Papers with number 22.

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Length: 29 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:inq:inqwps:ecineq2006-22

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Keywords: Taxes; general equilibrium; micro modeling; efficiency; distribution;

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References

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  1. Baker, Paul & Blundell, Richard & Micklewright, John, 1989. "Modelling Household Energy Expenditures Using Micro-data," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 99(397), pages 720-38, September.
  2. Rolf Aaberge & Ugo Colombino & Erling Holmøy & Birger Strøm & Tom Wennemo, 2004. "Population ageing and fiscal sustainability: An integrated micro-macro analysis of required tax changes," CHILD Working Papers, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY wp06_04, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY.
  3. Xavier Labandeira & José M. Labeaga & Miguel Rodríguez, 2006. "A Residential Energy Demand System for Spain," The Energy Journal, International Association for Energy Economics, International Association for Energy Economics, vol. 0(Number 2), pages 87-112.
  4. Parry, Ian W. H. & Williams, Roberton III & Goulder, Lawrence H., 1999. "When Can Carbon Abatement Policies Increase Welfare? The Fundamental Role of Distorted Factor Markets," Journal of Environmental Economics and Management, Elsevier, vol. 37(1), pages 52-84, January.
  5. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, American Economic Association, vol. 70(3), pages 312-26, June.
  6. Xavier Labandeira & José M. Labeaga, 1999. "Combining input-output analysis and micro-simulation to assess the effects of carbon taxation on Spanish households," Fiscal Studies, Institute for Fiscal Studies, Institute for Fiscal Studies, vol. 20(3), pages 305-320, September.
  7. François Bourguignon & Anne-Sophie Robilliard & Sherman Robinson, 2003. "Representative versus real households in the macro-economic modeling of inequality," DELTA Working Papers, DELTA (Ecole normale supérieure) 2003-05, DELTA (Ecole normale supérieure).
  8. David M. Newbery, 2005. "Why Tax Energy? Towards a More Rational Policy," The Energy Journal, International Association for Energy Economics, International Association for Energy Economics, vol. 0(Number 3), pages 1-40.
  9. Luc Savard, 2004. "Poverty and Inequality Analysis within a CGE Framework: a Comparative Analysis of the Representative Agent and Micro-Simulation Approaches," Cahiers de recherche, CIRPEE 0412, CIRPEE.
  10. Davies, James B., 2004. "Microsimulation, CGE and Macro Modelling for Transition and Developing Economies," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  11. Shoven,John B. & Whalley,John, 1992. "Applying General Equilibrium," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521319867.
  12. Xavier Labandeira & José M. Labeaga & Miguel Rodríguez, . "A Residential Energy Demand System for Spain," Working Papers 2005-04, FEDEA.
  13. James Banks & Richard Blundell & Arthur Lewbel, 1997. "Quadratic Engel Curves And Consumer Demand," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 527-539, November.
  14. Xavier Labandeira & Jose M. Labeaga & Miguel Rodriguez, 2004. "Microsimulating the Effects of Household Energy Price Changes in Spain," Public Economics, EconWPA 0412001, EconWPA, revised 02 Dec 2004.
  15. Maurizio Bussolo & Jann Lay, 2003. "Globalisation and Poverty Changes in Colombia," OECD Development Centre Working Papers 226, OECD Publishing.
  16. Newbery, D., 2005. "Why Tax Energy? Towards a More Rational Energy Policy," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 0508, Faculty of Economics, University of Cambridge.
  17. Denis Cogneau & Anne-Sophie Robilliard, 2004. "Poverty Alleviation Policies in Madagascar: a Micro-Macro Simulation Model," Working Papers, DIAL (Développement, Institutions et Mondialisation) DT/2004/11, DIAL (Développement, Institutions et Mondialisation), revised Nov 2004.
  18. Bohringer, Christoph & Rutherford, Thomas F., 1997. "Carbon Taxes with Exemptions in an Open Economy: A General Equilibrium Analysis of the German Tax Initiative," Journal of Environmental Economics and Management, Elsevier, vol. 32(2), pages 189-203, February.
  19. Rutherford, Thomas F, 1999. "Applied General Equilibrium Modeling with MPSGE as a GAMS Subsystem: An Overview of the Modeling Framework and Syntax," Computational Economics, Society for Computational Economics, Society for Computational Economics, vol. 14(1-2), pages 1-46, October.
  20. Elizabeth Symons & John Proops & Philip Gay, 1994. "Carbon taxes, consumer demand and carbon dioxide emissions: a simulation analysis for the UK," Fiscal Studies, Institute for Fiscal Studies, Institute for Fiscal Studies, vol. 15(2), pages 19-43, May.
  21. Ballard, Charles L & Shoven, John B & Whalley, John, 1985. "General Equilibrium Computations of the Marginal Welfare Costs of Taxes in the United States," American Economic Review, American Economic Association, American Economic Association, vol. 75(1), pages 128-38, March.
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Citations

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Cited by:
  1. François Bourguignon & Amedeo Spadaro, 2006. "Microsimulation as a Tool for Evaluating Redistribution Policies," Working Papers 20, ECINEQ, Society for the Study of Economic Inequality.
  2. Andrés J. Marchante Mera & Bienvenido Ortega Aguaza & José Sánchez Maldonado, 2006. "Las dimensiones del bienestar en las Comunidades Autónomas Españolas. Un análisis de Sigma y Gamma-Convergencia," Working Papers 2006-05, FEDEA.
  3. Pedro N. Rodríguez, & Simón Sosvilla-Rivero, 2006. "Understanding and Forecasting Stock Price Changes," Working Papers 2006-03, FEDEA.
  4. Dorothée Boccanfuso & Antonio Estache & Luc Savard, 2008. "Distributional impact of global warming environmental policies: A survey," Cahiers de recherche, Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke 08-14, Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke.
  5. Dorothee Boccanfuso & Antonio Estache & Luc Savard, 2011. "The Intra-country Distributional Impact of Policies to Fight Climate Change: A Survey," Journal of Development Studies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 47(1), pages 97-117.
  6. Xavier Labandeira & José M. Labeaga & Miguel Rodríguez, . "A Residential Energy Demand System for Spain," Working Papers 2005-04, FEDEA.
  7. Xavier Labandeira & José M. Labeaga & Miguel Rodríguez, 2005. "A Residential Energy Demand System for Spain," Working Papers, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research 0501, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
  8. Xavier Labandeira & Alberto Gago & Fidel Picos & Miguel Rodríguez, 2006. "Taxing Tourism in Spain: Results and Recommendations," Working Papers, Fondazione Eni Enrico Mattei 2006.40, Fondazione Eni Enrico Mattei.
  9. Dorothée Boccanfuso & Antonio Estache & Luc Savard, 2008. "Intra-Country Distributional Impact of Policies to Fight Climate Change: A Survey," Working Papers ECARES, ULB -- Universite Libre de Bruxelles 2008_038, ULB -- Universite Libre de Bruxelles.

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