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Assessing changes of the Hungarian tax and transfer system: A general-equilibrium microsimulation approach

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  • Péter Benczúr

    ()
    (Magyar Nemzeti Bank (central bank of Hungary))

  • Gábor Kátay

    ()
    (Magyar Nemzeti Bank (central bank of Hungary))

  • Áron Kiss

    ()
    (Magyar Nemzeti Bank (central bank of Hungary))

Abstract

We present a new general-equilibrium behavioural microsimulation model designed to assess long-run macroeconomic and fiscal consequences of reforms to the tax and transfer system. General-equilibrium feedback effects are simulated by embedding microsimulation in a parsimonious macro model of a small open economy. We estimate and calibrate the model to Hungary, and then perform three sets of simulations. The first one explores the impact of personal income tax rate reductions which are identical in cost but different in structure. The second one compares three different tax shift scenarios, while the third one evaluates actual policy measures between 2008 and 2013. The results suggest that while a cut in the marginal tax rate of high-income individuals may boost output, it does not have a significant employment effect. On the other hand, programs like the Employee Tax Credit do have a significant employment effect. We find that policy measures since 2008 substantially increase income inequality in the long run; the contribution of the changes after 2010 are about three times that of the changes before 2010. Our results highlight that taking account of household heterogeneity is crucial in the analysis of the macroeconomic effects of tax and transfer reforms.

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Bibliographic Info

Paper provided by Magyar Nemzeti Bank (the central bank of Hungary) in its series MNB Working Papers with number 2012/7.

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Length: 36 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:mnb:wpaper:2012/7

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Keywords: behavioural microsimulation; linked micro macro model; tax system; transfers;

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  1. 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.
  2. Cogneau, Denis & Robilliard, Anne-Sophie, 2000. "Growth, distribution and poverty in Madagascar," TMD discussion papers 61, International Food Policy Research Institute (IFPRI).
  3. Fernandez, Pablo & Aguirreamalloa, Javier & Corres, Luis, 2011. "Market risk premium used in 56 countries in 2011: A survey with 6,014 answers," IESE Research Papers D/920, IESE Business School.
  4. James B Davies, 2009. "Combining microsimulation with CGE and macro modelling for distributional analysis in developing and transition countries," International Journal of Microsimulation, Interational Microsimulation Association, vol. 2(1), pages 49-56.
  5. Creedy, John & Duncan, Alan, 2002. " Behavioural Microsimulation with Labour Supply Responses," Journal of Economic Surveys, Wiley Blackwell, vol. 16(1), pages 1-39, February.
  6. Cororaton, Caesar B. & Cockburn, John, 2007. "Trade reform and poverty--Lessons from the Philippines: A CGE-microsimulation analysis," Journal of Policy Modeling, Elsevier, vol. 29(1), pages 141-163.
  7. Rutherford, Thomas & Tarr, David & Shepotylo, Oleksandr, 2005. "The impact on Russia of WTO accession and the Doha agenda : the importance of liberalization of barriers against foreign direct investment in services for growth and poverty reduction," Policy Research Working Paper Series 3725, The World Bank.
  8. Fernandez, Pablo & del Campo, Javier, 2011. "Market risk premium used in 2010 by analysts and companies: A survey with 2.400 answers," IESE Research Papers D/912, IESE Business School.
  9. Clemens Fuest & Andreas Peichl & Thilo Schaefer, 2008. "Is a flat tax reform feasible in a grown-up democracy of Western Europe? A simulation study for Germany," International Tax and Public Finance, Springer, vol. 15(5), pages 620-636, October.
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Cited by:
  1. Aron Kiss, 2013. "Developments in the theory of optimal income taxation with applications to the Hungarian tax system," IEHAS Discussion Papers 1317, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  2. Zsombor Cseres-Gergely, 2014. "What effect does increasing the retirement age have on the employment rate older women? Empirical evidence from retirement age hikes in Hungary during the 2000s," Budapest Working Papers on the Labour Market 1403, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.

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