Tax Incidence and Fiscal Sustainability in DSGE Model

Junko Doi, Kota Yamada and Masaya Yasuoka
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Junko Doi: Kansai University
Kota Yamada: kansai University

No 231, Discussion Paper Series from School of Economics, Kwansei Gakuin University

Abstract: The aims of our study are to set a Dynamic Stochastic General Equilibrium (DSGE) model and to examine how increased income or consumption tax rates affect the ratio of public debt to GDP and other macroeconomic parameters. We consider taxation of three types, on labor income, capital income, and consumption. Results derived from our simulation show that an increase in income tax rates of these forms of taxation raises the ratio of public debt to GDP because GDP and tax revenues decrease. An increase in consumption tax rate can reduce the ratio of public debt to GDP because of an increase in the aggregate demand that is pulled up by the investment. Our study shows that a decrease in the income tax rate reduces the ratio of public debt to GDP.

Keywords: DSGE Model; Fiscal Sustainability; Taxation. (search for similar items in EconPapers)
JEL-codes: E60 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2021-11
New Economics Papers: this item is included in nep-cwa, nep-dge, nep-mac, nep-pbe and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:kgu:wpaper:231

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