This paper reviews several alternative approaches to tax modelling, emphasizing the strengths and limitations of different approaches and types of model along with their potential role in rational policy analysis. The coverage is limited to models of personal direct and indirect taxes. A range of small models is considered, in which there is little population heterogeneity, and tax structures are relatively simple. Larger microsimulation models, which are based on cross-sectional data sets and which attempt to capture much of the complexity of actual tax structures, are then discussed. The challenge presented by the need for behavioural models is examined. It is argued that there is a role for a variety of alternative models. Policy debates inevitably involve prejudices, much rhetoric and special pleading. Rational policy analysis, in which the implications of adopting a range of explicit value judgments are examined, can make a valuable contribution to such debates. Copyright 2001 by The Economic Society of Australia.
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Volume (Year): 77 (2001)
Issue (Month): 237 (June)
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