Fiscal Reform in the Republic of Moldova. Stochastic Dynamic General Equilibrium (SDGE) simulation

Denis Vîntu

MPRA Paper from University Library of Munich, Germany

Abstract: The article describes a dynamic general equilibrium for the Republic of Moldova, in the context of declining oil prices and COVID-19. We try to introduce an intergenerational model with the stochastic component, where we describe each self-employed agent, rather we try to adapt the model in a simulative tax reform, a transition from the progressive system that currently we have to a flat tax. For our hypothesis, it is assumed that there are 4 cohorts of population, selected by level of education (secondary, high school, university and lifelong learning) that pay taxes in a system based on social solidarity. Thus, the first conclusions can be drawn, namely that the tax system with 4 different rates 12, 15, 19 and 23% is the one that best approaches the Pareto type optimum, as opposed to the flat tax, which respects dynamic equilibrium. Public budget revenues are simulated in IS-LM-Laffer framework. And the forecast of budget accumulation is made using 4 distinct prediction models: naïve random walk, ARIMA, univariate model (AR) and vector error correction model (VECM). In addition, the main result is placed on the hypothesis that the empirical testing suggest that, unlike complicated models that have difficulty overcoming naïve random walk imitation, using techniques of associating and including monetary and fiscal indicators in linear regression, as well as adding structural shapes, some parameters of the models are quite significant. Of these, it seems that the closest to the economic reality of the country is the univariate model (AR), being also the most relevant for predicting the out-put gap, but also the stochastic component: the basic interest rate of the NBM's monetary policy.

Keywords: fiscal reform; monetary policy; cross-country convergence; prediction and forecasting methods; dynamic general equilibrium model; Pareto optimal balance; ARIMA modeling; time series analysis; Box – Jenkins method. (search for similar items in EconPapers)
JEL-codes: C10 C15 E23 E31 E52 E62 (search for similar items in EconPapers)
Date: 2021-04-30, Revised 2021-05-03
New Economics Papers: this item is included in nep-cis, nep-cmp, nep-dge, nep-mac, nep-ore and nep-tra
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Published in Al Farabi Journal. 9th International Conference on Social Sciences. 12.05.2021.1(2021): pp. 667-683

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https://mpra.ub.uni-muenchen.de/110114/1/MPRA_paper_110114.pdf revised version (application/pdf)

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