This project measures the fiscal and redistributive effects of hypothetical tax reforms implemented in EU Member States, taking into account the behavioural effects resulting from the adjustment of the labour supply and the economy-wide reaction to tax policy changes, i.e. the so-called second-round effects.
For this end, a first study combines the microsimulation model EUROMOD with the new Keynesian DSGE model of the European Commission, QUEST, and compares two different scenarios – one in which the second-round effects of tax changes over the medium term are ignored and another scenario where second-round effects are considered.
In a follow-up study, a real-time dynamic scoring exercise is developed by linking EUROMOD with a vector autoregressive model, including fiscal and labour market variables, in order to account for second-round effects to perform fiscal forecasting analysis.