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GTAP Resource #3310

"The Marginal cost of Tax Instruments in Finland"
by Marttila, Kimmo, Juha Honkatukia and Markku Stenborg

Coping with the effects of an ageing population is among the foremost fiscal challenges in most industrialised countries. The challenge is two-fold: the ageing of the population causes a rise in age-related expenses, which should be met with rising tax revenues; but it also leads to falling labour supply, which tends to have the effect of lowering tax revenues. However, as taxation also has an effect on the incentives to work and to invest, solving this two-fold problem calls for a comprehensive re-evaluation of the structure of the whole tax system.
This paper aims at comparing the costs of different taxes with the ultimate goal of proving measures that can be used in the evaluation of tax reforms and the effects of public spending. The measure we use for the excess burden is the Marginal Cost of Funds.
In the study, we use VATTAGE, a computable general equilibrium model of the Finnish economy, to evaluate the marginal cost of public funds of three different tax instruments under four different model specifications. We find considerable differences between the MCF of different taxes. However, we also find that the estimates of MCF depend on model specification, as does the ranking of different taxes. This may have important implications for the evaluation of tax structures that go beyond the Finnish case.

Resource Details (Export Citation) GTAP Keywords
Category: GTAP Application
Status: Not published
Date: 2010
Created: Marttila, K. (4/15/2010)
Updated: Batta, G. (5/20/2010)
Visits: 1,094
- Economic growth
- Economic development
- Labor market issues
- Europe (Northern)

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