An Applied General Equilibrium Model to Assess the Impact of National Tax Changes on a Regional Economy

Abstract

This paper presents two versions of an applied general equilibrium model for the regional economy of Andalusia, Spain, that differ in the closure rule adopted to describe the behavior of the public sector. We use the model with to analyze the impact that the reform of the personal income tax (Act 40/98) implemented in Spain as a whole would have had on the Andalusian region in particular. The model is of the neoclassical variety and includes not only the productive sectors of the economy but also the foreign sector and the government, which are usually absent from theoretical general equilibrium models. Both versions of the model are calibrated by using a Social Accounting Matrix of Andalusia for 1995. The analysis shows that the reform is not self-financing, not even partially, despite governmental claims. It also indicates that there is a positive but smaller than anticipated economic stimulus. In welfare terms, we find that the category of Urban Salaried consumers is the one that benefits the most in real income terms.

Using a Cge Model to Identify the Policy Trade-Off Between Unemployment and Inflation. The Efficient Phillips Curve

“…The second observation is that whereas inflation displays a rather wide range of variation, the unemployment in Andalusia (at least in the period under analysis) seems to show a low degree of sensitivity with respect to fiscal policy, since the range of variation of u is very small. This result is coherent with other existing studies for Andalusia in the literature (see, for example, Cardenete and Sancho, 2003) and it amounts to the notably high values of unemployment displayed in the table. Recall that unemployment has traditionally been a very hard problem in Spain (see, for example, Blanchard et al, 1995) and especially in Andalusia.…”

“…The main data used in this paper are those contained in the social accounting matrix (SAM hereafter) for Andalusia 1995 (see Cardenete and Sancho, 2003, for technical details). The SAM comprises 40 accounts, including 25 productive sectors (Table 1), 2 inputs (labour and capital), a saving/investment account, a government account, direct taxes (IT and ESS) and indirect taxes (VAT, payroll tax, output tax and tariffs), a foreign sector and a representative consumer.…”

Designing Efficient Subsidy Policies in a Regional Economy: A Multicriteria Decision-Making (MCDM)-Computable General Equilibrium (CGE) Approach

“…It is remarkable that unemployment shows a low degree of sensitivity with respect to any macroeconomic policy, since the range of variation of u is very small. This result is coherent with other existing studies for Andalusia in the literature (for example, CARDENETE and SANCHO, 2003b) and it amounts to the notably high values of unemployment displayed in Table 4. Recall that unemployment has traditionally been a very hard problem in Spain (for example, BLANCHARD et al, 1995) and especially in Andalusia.…”

Defining efficient policies in a general equilibrium model: a multi-objective approach

“…GDP 1994 and cpi 1994 are exogenously available 9 while equilibrium values for 1995 are endogenously determined by the proposed model. Real GDP is calculated as the total value of outputs from all sectors using benchmark rather than current prices.…”