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8 - Taxes in a CGE Model

Published online by Cambridge University Press:  11 December 2020

Mary E. Burfisher
Affiliation:
Purdue University, Indiana
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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. Partial equilibrium diagrams then illustrate the theoretical effects of taxes on economic activity and welfare. The results of tax policy experiments using a CGE model support the theoretical predictions and offer insight into the economywide effects of each tax. Three applied examples of tax policy analysis explore the second-best welfare effects of a tax, the marginal welfare impacts of a country’s entire tax structure, and the elimination of import tariffs in a preferential trade agreement.

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Publisher: Cambridge University Press
Print publication year: 2021

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  • Taxes in a CGE Model
  • Mary E. Burfisher, Purdue University, Indiana
  • Book: Introduction to Computable General Equilibrium Models
  • Online publication: 11 December 2020
  • Chapter DOI: https://doi.org/10.1017/9781108780063.009
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  • Taxes in a CGE Model
  • Mary E. Burfisher, Purdue University, Indiana
  • Book: Introduction to Computable General Equilibrium Models
  • Online publication: 11 December 2020
  • Chapter DOI: https://doi.org/10.1017/9781108780063.009
Available formats
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To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Google Drive.

  • Taxes in a CGE Model
  • Mary E. Burfisher, Purdue University, Indiana
  • Book: Introduction to Computable General Equilibrium Models
  • Online publication: 11 December 2020
  • Chapter DOI: https://doi.org/10.1017/9781108780063.009
Available formats
×