The Distributional Impact of VAT Reduction for Food in Hungary: Results from a Hungarian Microsimulation Model

Cathal O'Donoghue, Jinjing LI, Ilona Cserháti, Péter Elek, Tibor Keresztély, Tibor Takács

Research output: Contribution to journalArticle

Abstract

In this paper we illustrate how the incorporation of behavioural responses and dynamic effects alters the conclusions of static household microsimulation models on the distributional impacts of economic policies. Based on Hungary’s Household Budget and Living Conditions Survey, we model household consumption using the demand system approach of Creedy, 1998. This method makes it possible to obtain reasonable price elasticity estimates of consumption from cross-sectional data by combining them with Frisch-parameter values obtained from cross-country studies. With this consumption module, we simulate the distributional impacts of a hypothetical food VAT rate change in Hungary and show how the static and behavioural impact estimates differ according to income decile. We examine the sensitivity of our results to the choice of the country-level Frisch-parameter and to a realistic allowance for household-level variation in the Frisch-parameter.
Original languageEnglish
Pages (from-to)2-38
Number of pages37
JournalInternational Journal of Microsimulation
Volume11
Issue number3
Publication statusPublished - 2018

Fingerprint

Microsimulation
Decile
Elasticity
Estimate
Economics
Model
Module

Cite this

O'Donoghue, Cathal ; LI, Jinjing ; Cserháti, Ilona ; Elek, Péter ; Keresztély, Tibor ; Takács, Tibor. / The Distributional Impact of VAT Reduction for Food in Hungary: Results from a Hungarian Microsimulation Model. In: International Journal of Microsimulation. 2018 ; Vol. 11, No. 3. pp. 2-38.
@article{b1b26423fbc74ca39ae3f78d80e6688b,
title = "The Distributional Impact of VAT Reduction for Food in Hungary: Results from a Hungarian Microsimulation Model",
abstract = "In this paper we illustrate how the incorporation of behavioural responses and dynamic effects alters the conclusions of static household microsimulation models on the distributional impacts of economic policies. Based on Hungary’s Household Budget and Living Conditions Survey, we model household consumption using the demand system approach of Creedy, 1998. This method makes it possible to obtain reasonable price elasticity estimates of consumption from cross-sectional data by combining them with Frisch-parameter values obtained from cross-country studies. With this consumption module, we simulate the distributional impacts of a hypothetical food VAT rate change in Hungary and show how the static and behavioural impact estimates differ according to income decile. We examine the sensitivity of our results to the choice of the country-level Frisch-parameter and to a realistic allowance for household-level variation in the Frisch-parameter.",
keywords = "FRISCH-PARAMETER, MICROSIMULATION, POLICY ANALYSIS, VALUE ADDED TAX",
author = "Cathal O'Donoghue and Jinjing LI and Ilona Cserh{\'a}ti and P{\'e}ter Elek and Tibor Kereszt{\'e}ly and Tibor Tak{\'a}cs",
year = "2018",
language = "English",
volume = "11",
pages = "2--38",
journal = "International Journal of Microsimulation",
issn = "1747-5864",
publisher = "International Microsimulation Association",
number = "3",

}

The Distributional Impact of VAT Reduction for Food in Hungary: Results from a Hungarian Microsimulation Model. / O'Donoghue, Cathal; LI, Jinjing; Cserháti, Ilona; Elek, Péter; Keresztély, Tibor; Takács, Tibor.

In: International Journal of Microsimulation, Vol. 11, No. 3, 2018, p. 2-38.

Research output: Contribution to journalArticle

TY - JOUR

T1 - The Distributional Impact of VAT Reduction for Food in Hungary: Results from a Hungarian Microsimulation Model

AU - O'Donoghue, Cathal

AU - LI, Jinjing

AU - Cserháti, Ilona

AU - Elek, Péter

AU - Keresztély, Tibor

AU - Takács, Tibor

PY - 2018

Y1 - 2018

N2 - In this paper we illustrate how the incorporation of behavioural responses and dynamic effects alters the conclusions of static household microsimulation models on the distributional impacts of economic policies. Based on Hungary’s Household Budget and Living Conditions Survey, we model household consumption using the demand system approach of Creedy, 1998. This method makes it possible to obtain reasonable price elasticity estimates of consumption from cross-sectional data by combining them with Frisch-parameter values obtained from cross-country studies. With this consumption module, we simulate the distributional impacts of a hypothetical food VAT rate change in Hungary and show how the static and behavioural impact estimates differ according to income decile. We examine the sensitivity of our results to the choice of the country-level Frisch-parameter and to a realistic allowance for household-level variation in the Frisch-parameter.

AB - In this paper we illustrate how the incorporation of behavioural responses and dynamic effects alters the conclusions of static household microsimulation models on the distributional impacts of economic policies. Based on Hungary’s Household Budget and Living Conditions Survey, we model household consumption using the demand system approach of Creedy, 1998. This method makes it possible to obtain reasonable price elasticity estimates of consumption from cross-sectional data by combining them with Frisch-parameter values obtained from cross-country studies. With this consumption module, we simulate the distributional impacts of a hypothetical food VAT rate change in Hungary and show how the static and behavioural impact estimates differ according to income decile. We examine the sensitivity of our results to the choice of the country-level Frisch-parameter and to a realistic allowance for household-level variation in the Frisch-parameter.

KW - FRISCH-PARAMETER

KW - MICROSIMULATION

KW - POLICY ANALYSIS

KW - VALUE ADDED TAX

M3 - Article

VL - 11

SP - 2

EP - 38

JO - International Journal of Microsimulation

JF - International Journal of Microsimulation

SN - 1747-5864

IS - 3

ER -