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A Macro and Microeconomic Integrated Approach to Assessing the Effects of Public Policies

Xavier Labandeira (), Jose Labeaga and Miguel Rodriguez ()

No 22, Working Papers from ECINEQ, Society for the Study of Economic Inequality

Abstract: Most public policies have not only efficiency but also distributional effects. However, there is a kind of trade-off between modeling approaches suitable for calculating each one of these impacts on the economy. For the former, most of the studies have been conducted with general equilibrium models, whereas partial equilibrium models represent the main approach for distributional analysis. This paper proposes a methodology which enables us to carry out an analysis of the distributional and efficiency consequences of public policies. In order to do so, we have integrated a microeconomic household demand model and a computable general equilibrium model for the Spanish economy. We illustrate the advantages of this approach by simulating a revenue-neutral reform in Spanish indirect taxation, with a reduction of VAT and a simultaneous increase of energy taxes. The results show that the reform brings about significant efficiency and distributional effects, in some cases counterintuitive, and demonstrate the academic and social utility of this approximation.

Keywords: Taxes; general equilibrium; micro modeling; efficiency; distribution (search for similar items in EconPapers)
JEL-codes: C33 D58 H30 Q21 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2006
New Economics Papers: this item is included in nep-cmp, nep-ene and nep-pbe
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Citations: View citations in EconPapers (10) Track citations by RSS feed

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