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

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))

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.

Suggested Citation

  • Péter Benczúr & Gábor Kátay & Áron Kiss, 2012. "Assessing changes of the Hungarian tax and transfer system: A general-equilibrium microsimulation approach," MNB Working Papers 2012/7, Magyar Nemzeti Bank (Central Bank of Hungary).
  • Handle: RePEc:mnb:wpaper:2012/7
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    File URL: http://www.mnb.hu/letoltes/wp-2012-7-final.pdf
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    References listed on IDEAS

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    Citations

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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 Horvath & Matus Senaj & Zuzana Siebertova & Norbert Svarda, 2015. "The End of the Flat Tax Experiment in Slovakia," Discussion Papers 15/12, Department of Economics, University of York.
    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. Tamás Ilyés & Lóránt Varga, 2015. "A General Equilibrium Approach of Retail Payments," MNB Working Papers 2015/3, Magyar Nemzeti Bank (Central Bank of Hungary).
    7. 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.
    8. 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.
    9. repec:ksa:szemle:1738 is not listed on IDEAS
    10. Molnár, György & Cseres-Gergely, Zsombor & Szabó, Tibor, 2016. "Pénzt vagy életet?. Empirikus eredmények néhány gazdaságpolitikai beavatkozás heterogén jóléti hatásairól
      [For money or for life?. Empirical findings on the heterogenous welfare effects of some eco
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 901-943.
    11. 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.

    More about this item

    Keywords

    behavioural microsimulation; linked micro macro model; tax system; transfers;

    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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