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

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.Microsimulation, CGE, linked micro macro models, flat tax

The benefits of linking CGE and Microsimulation Models - Evidence from a Flat Tax analysis

Mircrosimulation models (MSM) and Computable General Equilibrium models (CGE) have both been widely used in policy analysis. The combination of these two model types allows the utilisation of the advantages of both types. The aim of this paper is to describe the state-of-the-art in simulation and to demonstrate the benefits of linking both model types modelling flat tax reform proposals for Germany. Taking the general equilibrium effects into account has important implications for the evaluation of a tax reform. The analysis shows that a personal income flat tax can indeed overcome the fundamental equity efficiency trade-off in the long-run 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. --Microsimulation,CGE,linked micro macro models,flat tax

The Benefits of Linking CGE and Microsimulation Models: Evidence from a Flat Tax Analysis

Mircrosimulation models (MSM) and Computable General Equilibrium models (CGE) have both been widely used in policy analysis. The combination of these two model types allows the utilisation of the advantages of both types. The aim of this paper is to describe the state-of-the-art in simulation and to demonstrate the benefits of linking both model types modelling flat tax reform proposals for Germany. Taking the general equilibrium effects into account has important implications for the evaluation of a tax reform. The analysis shows that a personal income flat tax can indeed overcome the fundamental equity efficiency trade-off in the long-run 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.microsimulation, CGE, linked micro macro models, flat tax

Documentation FiFoSiM: Integrated tax benefit microsimulation

This paper describes FiFoSiM, the integrated tax benefit microsimulation and CGE model of the Center of Public Economics at the University of Cologne. FiFoSiM consists of three main parts. The first part is a static tax benefit microsimulation module. The second part adds a behavioural component to the model: an econometrically estimated labour supply model. The third module is a CGE model which allows the user of FiFoSiM to assess the global economic effects of policy measures. Two specific features distinguish FiFoSiM from other tax benefit models: First, the simultaneous use of two databases for the tax benefit module and second, the linkage of the tax benefit model to a CGE model. --FiFoSiM,microsimulation,CGE

Effects of Flat Tax Reforms in Western Europe on Income Distribution and Work Incentives

The flat income tax has become increasingly popular recently, yet its implementation is limited to Eastern Europe. We analyse the distributional and efficiency effects of flat tax scenarios for Western European countries. Our simulations show that flat tax rates required to attain revenue neutrality with existing basic allowances improve labour supply incentives. However, they result in higher inequality and polarisation. Flat rates necessary to keep the inequality levels unchanged allow for some scope for flat taxes to increase both equity and efficiency. Our analysis suggests that Mediterranean countries are more likely to benefit from flat taxes.flat tax reform, income distribution, work incentives, microsimulation

Documentation FiFoSiM: integrated tax benefit microsimulation and CGE model

This documentation describes FiFoSiM, the integrated tax benefit microsimulation and CGE model of the Center of Public Economics at the University of Cologne. FiFoSiM consists of three main parts. The first part is a static tax benefit microsimulation module. The second part adds a behavioural component to the model: an econometricaly estimated labour supply model. The third module is a CGE model which allows the user of FiFoSiM to assess the global economic e¤ects of policy measures. Two specific features distinguish FiFoSiM from other tax benefit models. First, the simultaneous use of two databases for the tax benefit module and second, the linkage of the tax benefit model to a CGE model. --FiFoSiM,microsimulation,CGE

Multidimensional affluence: Theory and applications to Germany and the US

This paper suggests multidimensional affluence measures for the top of the distribution. In contrast to commonly used top income shares, they allow the analysis of the extent, intensity and breadth of affluence in several dimensions within a common framework. We illustrate this by analyzing the role of income and wealth as dimensions of multidimensional well-being in Germany and the US in 2007 as well as for the US over the period 1989–2007. We find distinct country differences with the country ranking depending on the measure. While in Germany wealth predominantly contributes to the intensity of affluence, income is more important in the US.top incomes, multidimensional measurement, richness, wealth, inequality

Fair and Efficient Taxation under Partial Control: Theory and Evidence

There is clear evidence that fairness plays a role in redistribution. Individuals want to compensate others for their misfortune, while they allow them to enjoy the fruits of their effort. Such fairness considerations have been introduced in political economy and optimal income tax models with a focus on income acquisition. However, actual tax-benefit systems are based on much more information. We introduce fairness in a tax-benefit scheme that is based on several characteristics. The novelty is the introduction of partial control. Each characteristic differs in terms of the degree of control, i.e., the extent to which it can be changed by exerting effort. Two testable predictions result. First, the tax rate on partially controllable characteristics should be lower compared to the tax rate on non-controllable tags. Second, the total effect of non-controllable characteristics on the post-tax outcome should be equal to zero. We estimate implicit tax rates for different characteristics in 26 European countries (using tEU-SILC data) and the US (using CPS data). We find a robust tendency in all countries to compensate more for the uncontrollable composite characteristic (based on sex, age and disability in our study) compared to the partially controllable one (based on family composition, immigration status, unemployment and education level). We also estimate the degree of fairness of tax-benefit schemes in different countries. Only the Continental countries France and Luxembourg pass the fairness test, whereas the Baltic and Anglo-Saxon countries (including the US) perform worst.fairness, redistribution, tax-benefit schemes, tagging, optimal taxation

Multidimensional Well-Being at the Top: Evidence for Germany

This paper employs a multidimensional approach for the measurement of well-being at the top of the distribution using German SOEP micro data. Besides income as traditional indicator for material well-being, we include health as a proxy for nonmaterial quality of life as well as self-reported satisfaction with life as dimensions. We find that one third of the German population is well-off in at least one dimension but only one percent in all three dimensions simultaneously. While the distribution of income has become more concentrated at the top, the concentration at the top of the multidimensional well-being distribution has decreased over time. Moreover, health as well as life satisfaction contribute quite substantially to multidimensional wellbeing at the top which has important policy implications.Multidimensional measurement, well-being, Germany

Retinal cone photoreceptors of the deer mouse Peromyscus maniculatus : development, topography, opsin expression and spectral tuning

A quantitative analysis of photoreceptor properties was performed in the retina of the nocturnal deer mouse, Peromyscus maniculatus, using pigmented (wildtype) and albino animals. The aim was to establish whether the deer mouse is a more suitable model species than the house mouse for photoreceptor studies, and whether oculocutaneous albinism affects its photoreceptor properties. In retinal flatmounts, cone photoreceptors were identified by opsin immunostaining, and their numbers, spectral types, and distributions across the retina were determined. Rod photoreceptors were counted using differential interference contrast microscopy. Pigmented P. maniculatus have a rod-dominated retina with rod densities of about 450.000/mm(2) and cone densities of 3000 - 6500/mm(2). Two cone opsins, shortwave sensitive (S) and middle-to-longwave sensitive (M), are present and expressed in distinct cone types. Partial sequencing of the S opsin gene strongly supports UV sensitivity of the S cone visual pigment. The S cones constitute a 5-15% minority of the cones. Different from house mouse, S and M cone distributions do not have dorsoventral gradients, and coexpression of both opsins in single cones is exceptional (<2% of the cones). In albino P. maniculatus, rod densities are reduced by approximately 40% (270.000/mm(2)). Overall, cone density and the density of cones exclusively expressing S opsin are not significantly different from pigmented P. maniculatus. However, in albino retinas S opsin is coexpressed with M opsin in 60-90% of the cones and therefore the population of cones expressing only M opsin is significantly reduced to 5-25%. In conclusion, deer mouse cone properties largely conform to the general mammalian pattern, hence the deer mouse may be better suited than the house mouse for the study of certain basic cone properties, including the effects of albinism on cone opsin expression