Assessing changes of the Hungarian tax and transfer system: A general-equilibrium microsimulation approach
AbstractWe 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 InfoPaper provided by Magyar Nemzeti Bank (the central bank of Hungary) in its series MNB Working Papers with number 2012/7.
Length: 36 pages
Date of creation: 2012
Date of revision:
behavioural microsimulation; linked micro macro model; tax system; transfers;
Find related papers by JEL classification:
- H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
- H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
This paper has been announced in the following NEP Reports:
- NEP-ACC-2013-01-19 (Accounting & Auditing)
- NEP-ALL-2013-01-19 (All new papers)
- NEP-CMP-2013-01-19 (Computational Economics)
- NEP-PBE-2013-01-19 (Public Economics)
- NEP-TRA-2013-01-19 (Transition Economics)
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