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The benefits and problems of linking micro and macromodels - Evidence from a flat tax analysis

Andreas Peichl ()

Journal of Applied Economics, 2009, vol. 12, 301-329

Abstract: Microsimulation (MS) and Computable General Equilibrium models (CGE) have both been widely used in policy analysis. Their combination allows the utilisation of the advantages of both types. The aim of this paper is to describe the state-of-the-art in simulation analysis and to illustrate the benefits and problems of linking micro and macro models by analysing flat tax reform proposals for Germany. Taking feedback effects into account has important implications for the evaluation of tax reforms. The analysis shows that a personal income flat tax can indeed overcome the fundamental equity efficiency trade-off while simultaneously increasing the tax revenue. However, this result does not hold for a flat tax combining a personal income flat tax with a corporate cash flow flat tax, even when allowing for an expost loss in revenue, as the top of the distribution still gains the most.

Keywords: microsimulation; CGE; linked micro macro models; flat tax (search for similar items in EconPapers)
JEL-codes: D58 H2 J22 (search for similar items in EconPapers)
Date: 2009
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Working Paper: The Benefits and Problems of Linking Micro and Macro Models: Evidence from a Flat Tax Analysis (2009) Downloads
Working Paper: Benefits and problems of linking micro and macro models - evidence from a flat tax analysis (2009) Downloads
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Handle: RePEc:cem:jaecon:v:12:y:2009:n:2:p:301-329