Fiscal Extension to ORANI-IT: A Computable General Equilibrium Model for Italy

Government of the Italian Republic (Italy), Ministry of Economy and Finance, Department of the Treasury Working Paper No. 8

34 Pages Posted: 16 Oct 2014

See all articles by Francesco Felici

Francesco Felici

Government of the Italian Republic (Italy) - Ministry of Economy and Finance - Department of the Treasury

Maria Gesualdo

Joint Research Centre - European Commission

Date Written: September 30, 2014

Abstract

In this paper we expand the national multi-sectoral computable general equilibrium (CGE) model ORANI-IT, allowing for a number of fiscal tools. The outcome is a computable general equilibrium tax model of Italy, developed at the Department of Treasury of the Italian Ministry of the Economy and Finance, in collaboration with the Centre of Policy Studies (CoPS), and currently managed at Sogei S.p.A. (IT Economia - Modelli di Previsione ed Analisi Statistiche). The paper demonstrates in considerable detail the methodology to incorporate a fiscal extension, that mainly consists in including a detailed tax information into existing commodity and production tax matrices, to the existing national model. In particular, the procedure to accommodate national data on tax revenues within the model’s database and explicitly model the full range of indirect taxes within the theoretical structure is reported. Within the fiscal extension, the model includes a comprehensive model of Value-Added-Tax (VAT), which accounts for all the typical features of a complex VAT system - such as multi-production, multiple tax rates, different degrees of exemptions and refundability factors - as well as of EU-specific matters relating to taxation of intra-EU exports, and to the scope of VAT and exemptions of public interest. Interestingly, the framework developed in this paper for Italy may be extendible to other European countries, which fall within the EU VAT legislation. The model also features a special emphasis on sectors national accounts, with a detailed system of equations describing government and households budget revenues and expenditures and transactions with the rest of the world. The output is a powerful tool for acquiring new insights on the current fiscal system, through the assessment of tailored fiscal reforms, which can consist of either changes in tax rates and tax bases. Future research may be pursued in the application of the model for evaluating alternative policies.

Keywords: Computable general equilibrium (CGE) tax models, indirect taxes, value-added-tax, sector accounts, Italy

JEL Classification: C68, H20, H25

Suggested Citation

Felici, Francesco and Gesualdo, Maria, Fiscal Extension to ORANI-IT: A Computable General Equilibrium Model for Italy (September 30, 2014). Government of the Italian Republic (Italy), Ministry of Economy and Finance, Department of the Treasury Working Paper No. 8, Available at SSRN: https://ssrn.com/abstract=2510245

Francesco Felici (Contact Author)

Government of the Italian Republic (Italy) - Ministry of Economy and Finance - Department of the Treasury ( email )

Via XX Settembre, 97
Rome, 00187
Italy
00390647614197 (Phone)

Maria Gesualdo

Joint Research Centre - European Commission ( email )

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