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Analysis of changes in the tax and transfer system with a behavioural microsimulation model

Author

Listed:
  • 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))

  • Balázs Reizer

    () (Central European University)

  • Mihály Szoboszlai

    () (Hungarian Central Statistical Office)

Abstract

In this study, using a new microsimulation model, we estimate the long-term fiscal and labour market effects of the changes to the tax and transfer system which were passed into law in 2010 and which are currently planned. According to our results, if all of the currently planned measures are fully implemented, the level of GDP will be increased by over 5% over the long run, while employment will increase by about 1.5% (approx. 60,000 individuals). The estimated increase in employment is due exclusively to planned cuts in transfers. While changes to personal income tax may improve the incentives of high-income earners and thus have a stimulating effect on the economy, their effect on employment is negative due to the phasing out of the wage tax credit. These projections may change significantly if market perception of Hungary’s economic risk deteriorates. In such a case, an increase in the required return on capital may completely offset the stimulating effect of tax and transfer changes. The measures analysed also produce a substantial distributional effect. Changes to welfare benefits, as well as tax modifications, impose a burden primarily on low income households, while households with higher income generally benefit from the changes. Overall, income concentration rises from a level similar to that of Denmark or Austria to the level of Germany or Estonia, approximating the EU average.

Suggested Citation

  • Péter Benczúr & Gábor Kátay & Áron Kiss & Balázs Reizer & Mihály Szoboszlai, 2011. "Analysis of changes in the tax and transfer system with a behavioural microsimulation model," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 6(3), pages 15-27, October.
  • Handle: RePEc:mnb:bullet:v:6:y:2011:i:3:p:15-27
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    File URL: http://www.mnb.hu/letoltes/benczur-katay-kiss-reizer-szoboszlai-en.pdf
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    Citations

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    Cited by:

    1. Simonovits, András & Cseres-Gergely, Zsombor, 2011. "A személyi jövedelemadó reformjának hatása a társadalombiztosítási nyugdíjakra
      [The impact of personal income tax reform on public pensions]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(12), pages 1029-1044.
    2. repec:ksa:szemle:1738 is not listed on IDEAS
    3. Gergely Baksay & Balázs Csomós, 2015. "Analysis of the Changes in the Hungarian Tax System and Social Transfers between 2010 and 2014 Using a Behavioural Microsimulation Model," Society and Economy, Akadémiai Kiadó, Hungary, vol. 37(supplemen), pages 29-64, December.
    4. repec:mnb:finrev:v:17:y:2018:i:2:p:99-123 is not listed on IDEAS
    5. Rafal Kierzenkowski, 2012. "Towards a More Inclusive Labour Market in Hungary," OECD Economics Department Working Papers 960, OECD Publishing.
    6. Gábor Kátay & Péter Benczúr & Áron Kiss & Olivér M. Rácz, 2014. "Income Taxation, Transfers and Labour Supply at the Extensive Margin," EcoMod2014 6925, EcoMod.
    7. Aron Kiss, 2013. "The optimal top marginal tax rate: Application to Hungary," European Journal of Government and Economics, Europa Grande, vol. 2(2), pages 100-118, December.

    More about this item

    Keywords

    microsimulation; labor-supply response; tax reforms; transfers; inequality; Hungary;

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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