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A regional computable general equilibrium model of Wales for tax policy analysis

Zhou, Long 2019. A regional computable general equilibrium model of Wales for tax policy analysis. PhD Thesis, Cardiff University.
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Abstract

Under the background of ongoing regional tax devolution in Wales, the development of new regional economic models has been needed to understand tax policy variations. This thesis develops a Computable General Equilibrium model of Wales for tax policy analysis. This model is a static, multi-sector and single-regional model. A Social Accounting Matrix is also developed as the benchmark database for the model. It features 21 sectors, 1 representative household, 2 external agents, 7 types of taxes and 3 production factors, and is balanced with various methods. Unknown model parameters are calibrated by the data information contained in the SAM. The model can be solved to replicate the benchmark SAM and the simulation is conducted regarding three taxes: Stamp Duty Land Tax, Corporation Tax and Income Tax; and three time frames: short, medium and long run. The time frames are defined according to different degrees of factor mobility. The whole simulation is also run with sensitivity analysis that three elasticity values regarding substitution between production factors are examined: 0.5, 1 and 1.5. For all the taxes, the simulation results generally give negative effects in the short run, and only in the medium to long run there appears expected reasonable results. The results of SDLT variation effects generally suggest that narrowing the gap between residential and non-residential SDLT rates has slightly more impact than simply cut of both rates. In this case, the mutual drag between residential and non-residential property prices can be observed. Generally, a relatively lower elasticity of substitution tends to deliver more significant economy-wide effects than a high elasticity. This implies that it is important to avoid oversubstitution effect between production factors so as to produce better results in response of a tax variation shock.

Item Type: Thesis (PhD)
Date Type: Completion
Status: Unpublished
Schools: Business (Including Economics)
Uncontrolled Keywords: Tax Devolution, Welsh Economy, Stamp Duty Land Tax, Income Tax, Corporation Tax, Social Accounting Matrix, Computable General Equilibrium Modelling, Regional Modelling
Date of First Compliant Deposit: 10 October 2019
Date of Acceptance: August 2019
Last Modified: 10 Oct 2019 12:23
URI: http://orca.cf.ac.uk/id/eprint/125938

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