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

In: Computable General Equilibrium Approaches In Urban And Regional Policy Studies

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  • MANUEL ALEJANDRO CARDENETE

    (Department of Economics, Universidad Pablo de Olavide de Sevilla, Seville, Spain)

  • FERRAN SANCHO

    (Department of Economics, Universidad Autónoma de Barcelona, Barcelona, Spain)

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 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.

Suggested Citation

  • Manuel Alejandro Cardenete & Ferran Sancho, 2006. "An Applied General Equilibrium Model to Assess the Impact of National Tax Changes on a Regional Economy," World Scientific Book Chapters, in: Masayuki Doi (ed.), Computable General Equilibrium Approaches In Urban And Regional Policy Studies, chapter 4, pages 41-55, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789812707116_0004
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    Keywords

    Computable General Equilibrium (CGE) Model; Social Accounting Matrix (SAM); Urban and Regional Policies (or Urban and Regional Policy Evaluation); Each Industry's Market Clearance; Structural and Long-Term Policy Impacts;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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