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Assessing the economic and social impact of tax and benefit reforms: A general-equilibrium microsimulation approach applied to Hungary

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  • Benczúr, Péter
  • Kátay, Gábor
  • Kiss, Áron

Abstract

We present a general-equilibrium behavioural microsimulation model designed to assess long-run macroeconomic, fiscal and distributional consequences of tax and benefit reforms in a small open economy. We apply the model to reforms adopted in Hungary between 2008 and 2013, a period characterised by intense reform activity in the wake of the financial crisis. Innovations of the model include the treatment of labour supply responses of individuals, affecting both participation (extensive margin) and work intensity (intensive margin), and the incorporation of general-equilibrium effects by a parsimonious macroeconomic model. Our results suggest that Hungary's flat tax reform may have boosted output by improving work incentives of high earners (along the intensive margin), but reduced work incentives and employment levels of low earners. We find that policy measures introduced since 2008 substantially increase income inequality. Moreover, the contribution of changes after 2010 is about four times that of the changes before 2010.

Suggested Citation

  • Benczúr, Péter & Kátay, Gábor & Kiss, Áron, 2018. "Assessing the economic and social impact of tax and benefit reforms: A general-equilibrium microsimulation approach applied to Hungary," Economic Modelling, Elsevier, vol. 75(C), pages 441-457.
  • Handle: RePEc:eee:ecmode:v:75:y:2018:i:c:p:441-457
    DOI: 10.1016/j.econmod.2018.06.016
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Horváth, Michal & Senaj, Matúš & Siebertová, Zuzana & Švarda, Norbert & Valachyová, Jana, 2019. "The end of the flat tax experiment in Slovakia: An evaluation using behavioural microsimulation in a dynamic macroeconomic framework," Economic Modelling, Elsevier, vol. 80(C), pages 171-184.
    2. Diego d'Andria & Jason DeBacker & Richard Evans & Jonathan Pycroft & Magdalena Zachlod-Jelec, 2019. "Micro-founded tax policy effects in a heterogenenous-agent macro-model," JRC Working Papers on Taxation & Structural Reforms 2019-01, Joint Research Centre (Seville site).
    3. Norbert Švarda & Jana Valachyová & Matúš Senaj & Michal Horváth & Zuzana Siebertová, 2018. "The end of the flat tax experiment in Slovakia: An evaluation using behavioural microsimulation linked with a dynamic macroeconomic framework," Discussion Papers 50, Central European Labour Studies Institute (CELSI).

    More about this item

    Keywords

    H22; H31; C63; Behavioural microsimulation; Linked micro-macro model; Flat tax; Structural reforms;

    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

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