Template-Type: ReDIF-Paper 1.0
Author-Name: Konstantins Benkovskis
Author-X-Name-First: Konstantins
Author-X-Name-Last: Benkovskis
Author-Workplace-Name: Latvijas Banka
Author-Name: Ludmila Fadejeva
Author-X-Name-First: Ludmila
Author-X-Name-Last: Fadejeva
Author-Workplace-Name: Latvijas Banka
Author-Name: Anna Pluta
Author-X-Name-First: Anna
Author-X-Name-Last: Pluta
Author-Workplace-Name: The Baltic International Centre for Economic Policy Studies
Author-Name: Anna Zasova
Author-X-Name-First: Anna
Author-X-Name-Last: Zasova
Author-Workplace-Name: The Baltic International Centre for Economic Policy Studies
Title: Keeping the best of two worlds: Linking CGE and microsimulation models for policy analysis
Abstract: In this paper, we link a CGE model with the tax-benefit microsimulation model EUROMOD for Latvia. The model linkage is done using an iterative top-down bottom-up approach, ensuring the convergence of changes in disposable income, employment and wage in both models. We also incorporate the unreported wage payments in CGE and EUROMOD to account for the substantial labour tax non-compliance in Latvia and improve the modelling of the fiscal sector. Several simulations demonstrate the advantages of the joint CGE-EUROMOD system over the individual macro and microsimulation models. The lack of income distribution aspect and the scarcity of fiscal instruments in CGE can be overcome by the features of EUROMOD. The CGE model, on the other hand, provides macroeconomic spillovers that are missing in the simulations of EUROMOD.
Creation-Date: 2023-01-17
File-URL: https://datnes.latvijasbanka.lv/papers/WP_1-2023.pdf
File-Format: Application/pdf
Number: 2023/01
Classification-JEL: C68, D58, D90, J46
Keywords: EUROMOD, CGE model, model linkage, informal sector
Handle: RePEc:ltv:wpaper:202301