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Evaluating tax reforms without utility measures: the performance of revenue potentialities

Author

Listed:
  • Fabrizio Bulckaen
  • Alberto Pench
  • Marco Stampini

Abstract

The desirability of revenue-neutral commodity tax reforms is traditionally evaluated by comparing the marginal cost of public funds (MCF) raised through different taxes. In simple theoretical models, however, it is possible to rely on more simple indicators, which do not imply a measure of consumer utility (Hatta (1986), Slemrod and Yitzhaki (1996), Bulckaen and Stampini (2001)). Unfortunately, the extension of such appealing policy rules to more complex economic frameworks is not straightforward and has not been assessed so far. We attempt to fill this gap and analyze the reliability of decisions based on revenue potentialities - defined as ratio between marginal revenue and tax base - through simulations within a numerical model of the Italian economy. Six hundred commodity tax reforms are simulated, with very encouraging results: forecasts based on the comparison of revenue potentialities are correct in 83 percent of cases simulated. Furthermore, forecast precision increases to 100 percent when revenue potentialities are sufficiently differentiated. Overall, the paper shows that revenue potentialities are reliable indicators for policy making.

Suggested Citation

  • Fabrizio Bulckaen & Alberto Pench & Marco Stampini, 2003. "Evaluating tax reforms without utility measures: the performance of revenue potentialities," Discussion Papers 2003/7, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
  • Handle: RePEc:pie:dsedps:2003/7
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    File URL: http://www.ec.unipi.it/documents/Ricerca/papers/2003-7.pdf
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    References listed on IDEAS

    as
    1. Andrea Mario Lavezzi, "undated". "Complex Dynamics in a Simple Model of Economic Specialization," Discussion Papers 2003/2, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    2. Gaetano Alfredo Minerva, "undated". "Location and Horizontal Differentiation under Duopoly with Marshallian Externalities," Discussion Papers 2003/10, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    3. Paolo Mariti, 2003. "The BC and AC Economics of the Firm," Discussion Papers 2003/4, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    4. Luca Spataro, "undated". "Social Security And Retirement Decisions In Italy," Discussion Papers 2003/1, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    5. Giuseppe Conti, 2003. "Institutions locales et banques dans la formation et le d_veloppement des districts industriels en Italie," Discussion Papers 2003/6, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    6. Nicola Meccheri, 2003. "Performance-related-pay nel pubblico impiego: un'analisi economica," Discussion Papers 2003/3, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    7. Piero Manfredi & Luciano Fanti, "undated". "Cycles in continuous-time economic models (with applications to Goodwin's and Solow's models)," Discussion Papers 2003/9, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
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    More about this item

    Keywords

    commodity tax reforms; revenue potentiality; marginal cost of public funds (MCF);

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models

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