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Please use this identifier to cite or link to this item: http://hdl.handle.net/1946/5242

Title: 
  • Title is in Icelandic Estimating the Effects of a Tax Reform in a Small Open Economy
Other Titles: 
  • Other Titles is in Icelandic Áhrif skattbreytinga á íslenska hagkerfið metin með einföldu DGE líkani
Abstract: 
  • Abstract is in Icelandic

    The effects of reforming the Icelandic tax system are studied with a simple dynamic
    general equilibrium model. With the revision, taxes on consumption, labour income
    and capital gains were raised, all of which are distortionary forms of taxation. The
    model used for the analysis is therefore designed to focus on taxation and it’s effect on
    the behaviour of economic agents. In addition, the model incorporates adjustment
    costs to investment, which creates an incentive for the household sector to spread
    investment over time.
    The optimal tax rates are derived to serve as a benchmark when the effects of the
    tax reform are examined. The model is solved for the three regimes, that is, the
    optimal tax regime, which is based on lump-sum taxes, the before tax reform regime
    and the new, more distorting regime. It is found that the tax reform will generate a
    welfare loss of approximately eight percent, where the loss is defined as the additional
    consumption required to render the households indifferent between the new and old
    regimes.
    Finally, it is explored how sensitive the results are to changes in the values of some
    of the exogenous parameters. The results are found to be relatively insensitive to
    changes in the time discount factor and adjustment cost parameter, but are more
    responsive to variation in the elasticity of intertemporal substitution.

Accepted: 
  • May 12, 2010
URI: 
  • http://hdl.handle.net/1946/5242


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