What do CGE models have to say about fiscal reform?

In this paper, we present computable general equilibrium (CGE) models as a tool for analyzing the impact of fiscal reforms. We discuss the general strengths and weaknesses of CGE models, and the basic principles to be followed for their proper use in the context of a democratic policy debate. Next, we examine which behaviors of economic agents are mainly affected by fiscal reforms, and how these can (or cannot) be handled in CGE models. Finally, we review a sample of CGE models applied to the evaluation of impacts on efficiency and equity. We conclude with remarks on the policy-relevance of the literature, and recommendations on how to use CGE models to make a valid contribution to debates around fiscal reform. (c) 2022 Economic Society of Australia, Queensland. Published by Elsevier B.V. All rights reserved.

Automated summary

This paper introduces computable general equilibrium (CGE) models as a tool for analyzing the impact of fiscal reforms. The general strengths and weaknesses of CGE models are discussed, along with the basic principles for their proper use in democratic policy debates. The paper examines how fiscal reforms mainly affect the behavior of economic agents and the handling of these effects in CGE models. A review of CGE models applied to evaluating efficiency and equity impacts is also provided, along with remarks on the policy-relevance of the literature and recommendations for making valid contributions to fiscal reform debates.