The Benefits and Problems of Linking Micro and Macro Models - Evidence from a Flat Tax Analysis

30 Pages Posted: 16 May 2009

See all articles by Andreas Peichl

Andreas Peichl

ZEW – Leibniz Centre for European Economic Research; University of Mannheim - School of Economics (VWL); IZA Institute of Labor Economics; University of Essex - Institute for Social and Economic Research (ISER)

Date Written: May 2009

Abstract

Mircrosimulation (MS) and Computable General Equilibrium models (CGE) have both been widely used in policy analysis. Their combination allows the utilisation of the advantages of both types. The aim of this paper is to describe the state-of-the-art in simulation analysis and to illustrate the benefits and problems of linking micro and macro models by analysing flat tax reform proposals for Germany. Taking feedback effects into account has important implications for the evaluation of tax reforms. The analysis shows that a personal income flat tax can indeed overcome the fundamental equity efficiency trade-off while simultaneously increasing the tax revenue. However, this result does not hold for a flat tax combining a personal income flat tax with a corporate cash flow flat tax, even when allowing for an ex-post loss in revenue as the top of the distribution still gains the most.

Keywords: Microsimulation, CGE, linked micro macro models, flat tax

JEL Classification: D58, H2, J22

Suggested Citation

Peichl, Andreas, The Benefits and Problems of Linking Micro and Macro Models - Evidence from a Flat Tax Analysis (May 2009). SOEPpaper No. 182, Available at SSRN: https://ssrn.com/abstract=1405203 or http://dx.doi.org/10.2139/ssrn.1405203

Andreas Peichl (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

University of Mannheim - School of Economics (VWL) ( email )

Mannheim 68131
Germany

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

University of Essex - Institute for Social and Economic Research (ISER)

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
93
Abstract Views
775
Rank
502,565
PlumX Metrics