Evaluating the Aggregate Effects of Tax and Benefit Reforms

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. The approach involving polynomial approximation to aggregated output from behavioural microsimulation permits the solution for the long-run steady state and the transition path in one numerical simulation of the dynamic aggregate economy. The practical usefulness of the approach is demonstrated by evaluating actual and hypothetical tax reforms in the context of Slovakia. 

Keywords: microsimulation, dynamic general equilibrium, unemployment, labour supply elasticity, tax reform
 
JEL classification: E24, H24, H31, J22
 
 
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