Local taxes in Buenos Aires City: A CGE approach

Omar Chisari, Leonardo Mastronardi and Carlos Romero

MPRA Paper from University Library of Munich, Germany

Abstract: The aim of this paper is to analyze the spillover effects of national and local tax policies using a static bi-regional general equilibrium model for the Buenos Aires City (BAC) and the rest of Argentina. The BAC represents 7% of the population of the country, but 29% of its GDP. We analyze the reciprocal impact of fiscal policies on welfare of private agents and the spillover effects on the performance of the public sector of both regions. As expected, the model shows that national fiscal policies do have relevant effects on the activity level of the city and on the welfare of its inhabitants. However, more unexpectedly, it also shows that fiscal decisions at the level of the city have a significant impact on the rest of the country. The results show that: (i) an increase in BAC local taxes produce a decline in the welfare of households and in the activity levels, in both regions; (ii) an increase in national value added tax decreases the regional GDP in both regions, but in different proportions, and increases the regional unemployment rate. The results differ depending on the type of tax (sales or property). Production elasticities and the rule of indexation of wages are key factors that affect the quantitative and qualitative results.

Keywords: Fiscal Federalism; Computable general equilibrium; Regional spillover effects (search for similar items in EconPapers)
JEL-codes: C68 D58 H77 (search for similar items in EconPapers)
Date: 2012-04-30
New Economics Papers: this item is included in nep-cmp, nep-geo, nep-pbe, nep-pub and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:40029

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