How do VAT changes affect the economy? An illustration using the new area-wide model

Günter Coenen and Peter McAdam ()

Research Bulletin, 2006, vol. 4, 2-5

Abstract: Changes in VAT rates, such as the one foreseen to be implemented in Germany next year, and their economic consequences are a recurrent issue in the policy debate. What are the key mechanisms through which VAT changes affect economic activity and price and wage developments? And what are the implications of pre-announcing their implementation? To address these questions, this article employs a calibrated version of the New Area-Wide Model which is currently under development within the Directorate General Research. This model builds on recent advances in developing micro-founded dynamic stochastic general equilibrium models suitable for quantitative policy analysis. JEL Classification: E32, E62

Keywords: fiscal policy; tax reform; euro area; DSGE modelling (search for similar items in EconPapers)
Date: 2006-04
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Citations: View citations in EconPapers (4)

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