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The end of the flat tax experiment in Slovakia: An evaluation using behavioural microsimulation in a dynamic macroeconomic framework
Institution:1. University of York, UK;2. Council for Budget Responsibility, Slovak Republic;1. Department of Logistics Management, National Kaohsiung University of Science and Technology, 1, University Rd., Yanchao Dist., Kaohsiung City 824, Taiwan;2. Department of Business Administration, Fu Jen Catholic University, Taiwan;3. Department of Risk Management and Insurance, Risk and Insurance Research Center, College of Commerce, National Chengchi University, 64, Sec. 2, Zhi-Nan Road, Wen-Shan District, Taipei 11605, Taiwan;4. Department of Leisure and Sports Management, Far East University, 49, Zhonghua Rd., Xinshi Dist., Tainan City 74448, Taiwan;1. Griffith Business School, Griffith University, Queensland, Australia;2. Department of Export Agriculture, Uva Wellassa University, Badulla, Sri Lanka;1. School of Business, East China University of Science and Technology, 130 Meilong Road, Shanghai 200237, China;2. Department of Finance, East China University of Science and Technology, Shanghai 200237, China;3. Department of Economics, University of Waterloo, 200 University Avenue West, Ontario, N2L 3G1, Canada;1. ESSCA School of Management, France;2. Institut Supérieur de Gestion, 2000, Le Bardo, University of Tunis, Tunisia;3. LAREQUAD FSEG de Tunis, University of Tunis El Manar, Tunisia;1. Department of Economics, 364 FCBE, University of Memphis, Memphis, TN 38152, USA;2. Department of Economics, 432 FAB, University of Memphis, Memphis, TN 38152, USA;1. Department of Economics, Tunghai University, No. 1727, Sec. 4, Xitun Dist., Taiwan Boulevard, Taichung, 40704, Taiwan;2. Department of Accounting, Feng Chia University, Taiwan
Abstract:The paper introduces a new way of linking microsimulation models with dynamic general equilibrium frameworks to obtain an evaluation of the impact of detailed tax and benefit measures on the aggregate economy. In the approach presented in this paper, income heterogeneity interacts with the macro-economy via aggregated individual labour supply decisions which influence, and are influenced by, the dynamic evolution of the real wage rate. The method involves a reduced-form representation of the information flow between the macroeconomic and microeconomic blocks. The practical usefulness of the approach is demonstrated by evaluating actual and hypothetical tax reforms that involve abandoning the flat tax system in Slovakia. A hypothetical move to a highly progressive tax structure is shown to generate some employment gains but is associated with a drop in aggregate income and tax revenue.
Keywords:Microsimulation  Dynamic general equilibrium  Unemployment  Labour supply elasticity  Tax reform  Flat tax  E24  H24  H31  J22
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