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Fiscal extension to ORANI-IT: a computable general equilibrium model for Italy

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  • Felici Francesco
  • Maria Gesualdo

Abstract

In this paper we expand the national multi-sectoral computable general equilibrium (CGE) model ORANI-IT, allowing for a number of fiscal tools. The outcome is a computable general equilibrium tax model of Italy, developed at the Department of Treasury of the Italian Ministry of the Economy and Finance, in collaboration with the Centre of Policy Studies (CoPS), and currently managed at Sogei S.p.A. (IT Economia - Modelli di Previsione ed Analisi Statistiche). The paper demonstrates in considerable detail the methodology to incorporate a fiscal extension, that mainly consists in including a detailed tax information into existing commodity and production tax matrices, to the existing national model. In particular, the procedure to accommodate national data on tax revenues within the model’s database and explicitly model the full range of indirect taxes within the theoretical structure is reported. Within the fiscal extension, the model includes a comprehensive model of Value-Added-Tax (VAT), which accounts for all the typical features of a complex VAT system - such as multi-production, multiple tax rates, different degrees of exemptions and refundability factors - as well as of EU-specific matters relating to taxation of intra-EU exports, and to the scope of VAT and exemptions of public interest. Interestingly, the framework developed in this paper for Italy may be extendible to other European countries, which fall within the EU VAT legislation. The model also features a special emphasis on sectors national accounts, with a detailed system of equations describing government and households budget revenues and expenditures and transactions with the rest of the world. The output is a powerful tool for acquiring new insights on the current fiscal system, through the assessment of tailored fiscal reforms, which can consist of either changes in tax rates and tax bases. Future research may be pursued in the application of the model for evaluating alternative policies.

Suggested Citation

  • Felici Francesco & Maria Gesualdo, 2014. "Fiscal extension to ORANI-IT: a computable general equilibrium model for Italy," Working Papers 8, Department of the Treasury, Ministry of the Economy and of Finance.
    • Handle: RePEc:itt:wpaper:wp2014-8
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    References listed on IDEAS

    as
    1. James Giesecke & Nhi Hoang Tran, 2012. "A general framework for measuring VAT compliance rates," Applied Economics, Taylor & Francis Journals, vol. 44(15), pages 1867-1889, May.
    2. Gottfried, Peter & Wiegard, Wolfgang, 1991. "Exemption versus zero rating : A hidden problem of VAT," Journal of Public Economics, Elsevier, vol. 46(3), pages 307-328, December.
    3. Francesco Felici & Maria Gesualdo, 2014. "ORANI-IT: a computable general equilibrium model of Italy," Working Papers 7, Department of the Treasury, Ministry of the Economy and of Finance.
    4. Institute for Fiscal Studies, 2011. "A retrospective evaluation of elements of the EU VAT system," Taxation Studies 0039, Directorate General Taxation and Customs Union, European Commission.
    5. Copenhagen Economics, 2013. "VAT in the Public Sector and Exemptions in the Public Interest," Taxation Studies 0045, Directorate General Taxation and Customs Union, European Commission.
    6. Giesecke, James A. & Nhi, Tran Hoang, 2010. "Modelling value-added tax in the presence of multi-production and differentiated exemptions," Journal of Asian Economics, Elsevier, vol. 21(2), pages 156-173, April.
    7. International Monetary Fund, 2012. "Italy: Technical Assistance Report--The Delega Fiscale and the Strategic Orientation of Tax Reform," IMF Staff Country Reports 2012/280, International Monetary Fund.
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    Cited by:

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    More about this item

    Keywords

    Computable general equilibrium (CGE) tax models; indirect taxes; value-added-tax; sector accounts; Italy;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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