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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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  1. 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.
  2. 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.
  3. Sherman, Robinson & Robilliard, Anne-Sophie & Bourguignon, François, 2005. "Representative versus real households in the macro-economic modelling of inequality," Economics Papers from University Paris Dauphine, Paris Dauphine University 123456789/4535, Paris Dauphine University.
  4. 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.
  5. 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.
  6. 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," Discussion Papers, Research Department of Statistics Norway 367, Research Department of Statistics Norway.
  7. 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.
  8. Luc Savard, 2005. "Poverty and Inequality Analysis within a CGE Framework: A Comparative Analysis of the Representative Agent and Microsimulation Approaches," Development Policy Review, Overseas Development Institute, Overseas Development Institute, vol. 23(3), pages 313-331, 05.
  9. 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.
  10. 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.
  11. 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.
  12. Shoven,John B. & Whalley,John, 1992. "Applying General Equilibrium," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521266550.
  13. 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.
  14. Parry, Ian & Goulder, Lawrence & Williams III, Roberton, 1997. "When Can Carbon Abatement Policies Increase Welfare? The Fundamental Role of Distorted Factor Markets," Discussion Papers, Resources For the Future dp-97-18-rev, Resources For the Future.
  15. 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.
  16. Maurizio Bussolo & Jann Lay, 2003. "Globalisation and Poverty Changes in Colombia," OECD Development Centre Working Papers 226, OECD Publishing.
  17. 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).
  18. 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.
  19. 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.
  20. 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.
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Cited by:
  1. François Bourguignon & Amedeo Spadaro, 2006. "Microsimulation as a Tool for Evaluating Redistribution Policies," Working Papers, ECINEQ, Society for the Study of Economic Inequality 20, ECINEQ, Society for the Study of Economic Inequality.
  2. 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.
  3. repec:hal:wpaper:halshs-00590863 is not listed on IDEAS
  4. 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.
  5. Alberto Gago & Xavier Labandeira & Fidel Picos & Miguel Rodríguez, 2006. "Taxing Tourism in Spain: Results and Recommendations," DEA Working Papers, Universitat de les Illes Balears, Departament d'Economía Aplicada 16, Universitat de les Illes Balears, Departament d'Economía Aplicada.
  6. 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.
  7. 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.
  8. 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.
  9. Pedro N. Rodríguez, & Simón Sosvilla-Rivero, 2006. "Understanding and Forecasting Stock Price Changes," Working Papers 2006-03, FEDEA.

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