Local taxes in Buenos Aires City: A CGE approach

Chisari, Omar Osvaldo and Mastronardi, Leonardo Javier and Romero, Carlos Adrián (2012): Local taxes in Buenos Aires City: A CGE approach.

Abstract

The aim of this paper is to analyze the spillover effects of national and local tax policies using a static bi-regional general equilibrium model for the Buenos Aires City (BAC) and the rest of Argentina. The BAC represents 7% of the population of the country, but 29% of its GDP. We analyze the reciprocal impact of fiscal policies on welfare of private agents and the spillover effects on the performance of the public sector of both regions. As expected, the model shows that national fiscal policies do have relevant effects on the activity level of the city and on the welfare of its inhabitants. However, more unexpectedly, it also shows that fiscal decisions at the level of the city have a significant impact on the rest of the country. The results show that: (i) an increase in BAC local taxes produce a decline in the welfare of households and in the activity levels, in both regions; (ii) an increase in national value added tax decreases the regional GDP in both regions, but in different proportions, and increases the regional unemployment rate. The results differ depending on the type of tax (sales or property). Production elasticities and the rule of indexation of wages are key factors that affect the quantitative and qualitative results.

• Item Type: MPRA Paper
• Language: English
• Keywords: Fiscal Federalism, Computable general equilibrium, Regional spillover effects
• Subjects: H - Public Economics > H7 - State and Local Government ; Intergovernmental Relations > H77 - Intergovernmental Relations ; Federalism ; Secession; C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C68 - Computable General Equilibrium Models; D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D58 - Computable and Other Applied General Equilibrium Models

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