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Simulating the Effect of Business Tax Abolition through a New Regional CGE Model : Evidencefrom Italy

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  • Baldassarre,Alessio
  • Calà,Valerio Ferdinando
  • Carullo,Danilo
  • Dudu,Hasan
  • Fusco,Elisa Marie
  • Giacobbe,Pasquale
  • Orecchia,Carlo

Abstract

The main goal of regional computable general equilibrium models is to analyze how differentregions within a specific area react to certain shocks. Therefore, countries with high heterogeneity among regions,like Italy, constitute an interesting case study for regional computable general equilibrium model analysis. Thispaper presents the regional part of the new (recursive) dynamic single-country computable general equilibrium modelcalled the Italian Regional and Environmental Computable General Equilibrium of the Department of Finance, based onthe Mitigation, Adaptation and New Technologies Applied General Equilibrium model of the World Bank. A new regionalsocial accounting matrix for Italy (20 regions at the Nomenclature of territorial units for statistics level) hasbeen constructed. The social accounting matrix is used as input data to simulate the abolition of the regional tax onproductive activities (regional business tax) through threedifferent scenarios, focusing on the effects on gross domestic product, regional value added, and welfare. Theresults show that under the modeling assumptions, the complete abolition of the regional tax on productiveactivities would positively impact Italian economic growth and regional welfare.

Suggested Citation

  • Baldassarre,Alessio & Calà,Valerio Ferdinando & Carullo,Danilo & Dudu,Hasan & Fusco,Elisa Marie & Giacobbe,Pasquale & Orecchia,Carlo, 2023. "Simulating the Effect of Business Tax Abolition through a New Regional CGE Model : Evidencefrom Italy," Policy Research Working Paper Series 10387, The World Bank.
    • Handle: RePEc:wbk:wbrwps:10387
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