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Assessing changes of the Hungarian tax and transfer system: A general-equilibrium microsimulation approach

Author Info

Listed author(s):
  • 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))

Abstract

We 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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Paper provided by Magyar Nemzeti Bank (Central Bank of Hungary) in its series MNB Working Papers with number 2012/7.

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Length: 36 pages
Date of creation: 2012
Handle: RePEc:mnb:wpaper:2012/7
Contact details of provider: Web page: http://www.mnb.hu/

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Keywords: 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

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  1. Creedy, John & Duncan, Alan, 2002. " Behavioural Microsimulation with Labour Supply Responses," Journal of Economic Surveys, Wiley Blackwell, vol. 16(1), pages 1-39, February.
  2. Rutherford, Thomas & Tarr, David & Shepotylo, Oleksandr, 2005. "The impact on Russia of WTO accession and the Doha agenda : the importance of liberalization of barriers against foreign direct investment in services for growth and poverty reduction," Policy Research Working Paper Series 3725, The World Bank.
  3. Andreas Peichl, 2009. "The benefits and problems of linking micro and macromodels - Evidence from a flat tax analysis," Journal of Applied Economics, Universidad del CEMA, vol. 12, pages 301-329, November.
  4. James B Davies, 2009. "Combining microsimulation with CGE and macro modelling for distributional analysis in developing and transition countries," International Journal of Microsimulation, International Microsimulation Association, vol. 2(1), pages 49-56.
  5. Cororaton, Caesar B. & Cockburn, John, 2007. "Trade reform and poverty--Lessons from the Philippines: A CGE-microsimulation analysis," Journal of Policy Modeling, Elsevier, vol. 29(1), pages 141-163.
  6. Clemens Fuest & Andreas Peichl & Thilo Schaefer, 2008. "Is a flat tax reform feasible in a grown-up democracy of Western Europe? A simulation study for Germany," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 15(5), pages 620-636, October.
  7. Fernandez, Pablo & del Campo, Javier, 2011. "Market risk premium used in 2010 by analysts and companies: A survey with 2.400 answers," IESE Research Papers D/912, IESE Business School.
  8. Fernandez, Pablo & Aguirreamalloa, Javier & Corres, Luis, 2011. "Market risk premium used in 56 countries in 2011: A survey with 6,014 answers," IESE Research Papers D/920, IESE Business School.
  9. Cogneau, Denis & Robilliard, Anne-Sophie, 2000. "Growth, distribution and poverty in Madagascar," TMD discussion papers 61, International Food Policy Research Institute (IFPRI).
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Cited by:

  1. Áron Kiss & Pálma Mosberger, 2015. "The elasticity of taxable income of high earners: evidence from Hungary," Empirical Economics, Springer, vol. 48(2), pages 883-908, March.
  2. Michal Horváth & Matúš Senaj & Zuzana Siebertová & Norbert Švarda, 2015. "The End of the Flat Tax Experiment in Slovakia," Discussion Papers 33, Central European Labour Studies Institute (CELSI).
  3. Gábor Kátay & Péter Benczúr & Áron Kiss & Olivér M. Rácz, 2014. "Income Taxation, Transfers and Labour Supply at the Extensive Margin," EcoMod2014 6925, EcoMod.
  4. Kamil Galuscak & Gabor Katay, 2014. "Labour Force Participation and Tax-Benefit Systems: A Cross-Country Comparative Perspective," Working Papers 2014/10, Czech National Bank, Research Department.
  5. 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.
  6. Zsombor Cseres-Gergely, 2014. "What effect does increasing the retirement age have on the employment rate older women? Empirical evidence from retirement age hikes in Hungary during the 2000s," Budapest Working Papers on the Labour Market 1403, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  7. Cseres-Gergely, Zsombor, 2015. "A 2000-es évek magyarországi nyugdíjkorhatár-emeléseinek azonnali hatása az érintett nők munkavállalására
    [The effect raising the retirement age has on the employment rate of older women. Empirical    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(6), pages 652-673.

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