Combining CGE and microsimulation models: Effects on equality of VAT reforms
AbstractThe effects on the degree of equality of reforms in indirect taxation are analysed by using a microsimulation model of the Norwegian economy subsequent to a CGE model. The two main reforms studied are substitution of a uniform VAT rate on all goods and services and substitution of the non-uniform Norwegian VAT reform of 2001 for the previous, differentiated system. A main characteristic of the non-uniform reform is the halving of the VAT rate on food. All reforms are made public revenue neutral by changes in the VAT rate. Producer prices, pre-tax nominal incomes, wealth and transfers are all exogenous in the microsimulation model. In this paper we feed percentage changes in corresponding variables from the CGE model into the microsimulation model in order to enrich the microsimulation analyses. The non-uniform VAT reform leads to a clear increase in equality while the change in equality concerning the uniform reform is close to 0. With the uniform VAT reform, as opposed to the non-uniform, decompositions show that taking CGE effects into account has a large impact on the degree of equality. Changed producer prices and changed pre-tax nominal incomes, wealth and transfers both contribute to this.
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Bibliographic InfoPaper provided by Research Department of Statistics Norway in its series Discussion Papers with number 392.
Date of creation: Oct 2004
Date of revision:
CGE and microsimulation models; "Macro-micro" links; Indirect taxation; VAT reforms; Equality;
Find related papers by JEL classification:
- D3 - Microeconomics - - Distribution
- D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
- D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
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