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

Arbeitspapier

Microsimulation (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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: SOEPpapers on Multidisciplinary Panel Data Research ; No. 182

Classification and Topics

• Classification: Wirtschaft ; Computable and Other Applied General Equilibrium Models ; Time Allocation and Labor Supply
• Subject: Microsimulation ; CGE ; linked micro macro models ; flat tax

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Peichl, Andreas
• Event: Veröffentlichung
• (who): Deutsches Institut für Wirtschaftsforschung (DIW)
• (where): Berlin
• (when): 2009

Further information

• Handle: http://hdl.handle.net/10419/150729
• Last update: 10.03.2025, 11:41 AM CET