Assessing the Economic and Social Impact of Tax and Transfer System Reforms: A General Equilibrium Microsimulation Approach

Peter Benczur, Gábor Kátay and Áron Kiss

No 2017-09, JRC Working Papers in Economics and Finance from Joint Research Centre, European Commission

Abstract: We present a general-equilibrium behavioural microsimulation model designed to assess long-run macroeconomic, fiscal and social consequences of reforms to the tax and transfer system. The behaviour of labour supply is assessed along both the extensive and intensive margins, by merging the discrete choice and the elasticity of taxable income approaches. General-equilibrium feedback effects are simulated by embedding microsimulation in a parsimonious macro model of a small open economy. We estimate and calibrate the model to Hungary, and then perform three sets of simulations. The first one explores the impact of personal income tax reductions that are identical in cost but different in structure. The second one compares three different tax shift scenarios, while the third one evaluates actual policy measures between 2008 and 2013. The results suggest that while a cut in the marginal tax rate of high-income individuals may boost output, it does not have a significant employment effect. On the other hand, programs like the Employee Tax Credit do have a significant employment effect. We find that the policy measures introduced since 2008 substantially increase income inequality in the long run; the contribution of the changes after 2010 are about four times that of the changes before 2010. Our results highlight that taking account of household heterogeneity is crucial in the analysis of the macroeconomic effects of tax and transfer reforms.

Keywords: behavioural microsimulation; linked micro macro model; tax system; transfers (search for similar items in EconPapers)
JEL-codes: C63 H22 H31 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2017-11
New Economics Papers: this item is included in nep-cmp, nep-eur and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published by Publications office of the European Union, 2017

Downloads: (external link)
https://publications.jrc.ec.europa.eu/repository/handle/JRC109172 (application/pdf)

Related works:
Journal Article: Assessing the economic and social impact of tax and benefit reforms: A general-equilibrium microsimulation approach applied to Hungary (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:jrs:wpaper:201709

Access Statistics for this paper

More papers in JRC Working Papers in Economics and Finance from Joint Research Centre, European Commission Contact information at EDIRC.
Bibliographic data for series maintained by Peter Benczur ().