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Tax Incidence and Fiscal Sustainability in DSGE Model

Author

Listed:
  • Junko Doi

    (Kansai University)

  • Kota Yamada

    (kansai University)

  • Masaya Yasuoka

    (Kwansei Gakuin University)

Abstract

The aims of our study are to set a Dynamic Stochastic General Equilibrium (DSGE) model and to examine how increased income or consumption tax rates affect the ratio of public debt to GDP and other macroeconomic parameters. We consider taxation of three types, on labor income, capital income, and consumption. Results derived from our simulation show that an increase in income tax rates of these forms of taxation raises the ratio of public debt to GDP because GDP and tax revenues decrease. An increase in consumption tax rate can reduce the ratio of public debt to GDP because of an increase in the aggregate demand that is pulled up by the investment. Our study shows that a decrease in the income tax rate reduces the ratio of public debt to GDP.

Suggested Citation

  • Junko Doi & Kota Yamada & Masaya Yasuoka, 2021. "Tax Incidence and Fiscal Sustainability in DSGE Model," Discussion Paper Series 231, School of Economics, Kwansei Gakuin University.
    • Handle: RePEc:kgu:wpaper:231
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    More about this item

    Keywords

    DSGE Model; Fiscal Sustainability; Taxation.;
    All these keywords.

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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