Book contents
- Frontmatter
- Contents
- Text Boxes
- About This Book
- Acknowledgments
- 1 Introduction to Computable General Equilibrium Models
- 2 Elements of a Computable General Equilibrium Model
- 3 The CGE Model Database: A Social Accounting Matrix
- 4 Final Demand in a CGE Model
- 5 Supply in a CGE Model
- 6 Factors of Production in a CGE Model
- 7 Trade in a CGE Model
- 8 Taxes in a CGE Model
- 9 Conclusion: Frontiers in CGE Modeling
- Model Exercises
- Appendix
- Glossary
- Practice and Review Answer Key
- Model Exercise Answer Key
- References
- Author Index
- Subject Index
8 - Taxes in a CGE Model
Published online by Cambridge University Press: 05 June 2012
- Frontmatter
- Contents
- Text Boxes
- About This Book
- Acknowledgments
- 1 Introduction to Computable General Equilibrium Models
- 2 Elements of a Computable General Equilibrium Model
- 3 The CGE Model Database: A Social Accounting Matrix
- 4 Final Demand in a CGE Model
- 5 Supply in a CGE Model
- 6 Factors of Production in a CGE Model
- 7 Trade in a CGE Model
- 8 Taxes in a CGE Model
- 9 Conclusion: Frontiers in CGE Modeling
- Model Exercises
- Appendix
- Glossary
- Practice and Review Answer Key
- Model Exercise Answer Key
- References
- Author Index
- Subject Index
Summary
This chapter examines the treatment of trade and domestic taxes in a computable general equilibrium (CGE) model. Trade taxes are imposed on imports and exports of goods and services. Domestic taxes are taxes paid by production activities on output and factor use and by purchasers on sales of intermediate and retail goods, and income taxes. We trace the tax data in a Social Accounting Matrix (SAM) to describe the agent and the economic activity on which the tax is levied and the amount of revenue generated by each tax; we also show how to use the SAM's data to calculate tax rates. Simple partial equilibrium diagrams then illustrate the theoretical effects of taxes on economic activity and economic efficiency. The results of tax policy experiments using a CGE model support the theoretical predictions and offer additional insight into their economywide effects.
The large federal deficit in the United States in 2011 has spurred intense debate on whether the sizeable tax cuts enacted by the previous administration should be maintained or allowed to lapse. Taxes influence the behavior of an economy's consumers and producers in important ways. CGE models have proven to be a valuable tool for researchers in empirically and comprehensively analyzing how taxes affect households' and firms' economic decisions, and therefore the economy as a whole.
Governments impose taxes for many reasons. Foremost is the need to raise revenue to support the provision of public goods such as national defense and education.
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- Chapter
- Information
- Introduction to Computable General Equilibrium Models , pp. 174 - 207Publisher: Cambridge University PressPrint publication year: 2011