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Development of Web-Based CGE Model for Tax Policy Analysis

Amir, Hidayat and Nugroho, Anda (2013): Development of Web-Based CGE Model for Tax Policy Analysis.

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Abstract

The computable general equilibrium (CGE) model has played an important role on policy impact analysis. The main strength of CGE analysis is that it models the whole economy explicitly, capture the market mechanism, interlinking between sectors and transactions between economic agents despite being under restrictive assumptions. A clear microeconomic structure with links between micro and macro aspects of the economy makes it the soundest tool for quantitative policy analysis. The simulation results help analysts to understand the essential relationships relevant to particular policy and very useful to build a bridge between economists, policy makers and also stakeholders, and provide them with a base for dialogue.

Fiscal Policy Agency (Badan Kebijakan Fiskal/BKF) is a unit in the Indonesia Ministry of Finance that responsible in the fiscal policy formulation. The unit intensively uses the CGE model as a tool of analysis particularly in the ex-ante impact of tax policy analysis. There are typical tax policies such as increasing (reducing) the VAT rate, excise tax, or import tariff, imposing export tax, adjusting the corporate and personal income tax rate that need to be evaluated and present the impacts into the policy formulation process. The simulation results need to be delivered concisely and in the very informative ways so that the costs and the benefits of the proposed policy clear enough to be understood; unuseful and irrelevant information are eliminated. This study attempts to develop a web-based CGE model for these purposes. Basically using cloud computing approach, the simulation processes are hidden and running in the server; in the web interface are only provided the options for policy simulation and then the presentation of the impacts (in graph and excel) after concluding the simulations.

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