“The Impact of Micro-simulation and CGE modeling on Tax Reform and Tax Advice in Developing Countries”: A Survey of Alternative Approaches and an Application to Pakistan

Andrew Feltenstein (), Luciana Lopes, Janet Porras Mendoza () and Sally Wallace
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Janet Porras Mendoza: International Center for Public Policy. Andrew Young School of Policy Studies, Georgia State University

International Center for Public Policy Working Paper Series, at AYSPS, GSU from International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University

Abstract: Computational general equilibrium models (CGE) and micro-simulation models (MSM) each have their own sets of strengths and weaknesses. Both have been widely used for the analysis of fiscal policies in developing countries, and many attempts have been made to link the two models, thereby combining their relative strengths. We survey a broad literature that uses a variety of approaches to apply linked CGE and MSM models to analyze fiscal policies, in particular taxes and tariffs, in developing countries. We conclude that the “top down” approach, in which the aggregate outputs of the CGE model feed into the MSM, is the most commonly used. Nonetheless, a “bottom up” approach, in which the MSM generates estimated parameters, such as effective tax rates, which are then used as inputs to the CGE, may also be quite useful. As an example, we also develop both CGE and MSM models of Pakistan in order to indicate the relative uses of each model, although we have not at this time linked the two models.

Keywords: Computable General Equilibrium; Micro-simulation; Fiscal Policy; Pakistan (search for similar items in EconPapers)
Pages: 46 pages
Date: 2013-04-07
New Economics Papers: this item is included in nep-cmp, nep-pbe and nep-pub
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Citations: View citations in EconPapers (4)

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