Tax simulations for Spain with a flexible demand system

Abstract

The final aim of this paper is to study the impact on welfare and revenue of changes in the Spanish indirect tax system: First, we estimate a complete flexible demand model on non durable goods exclusively, then we conduct a simulation exercise for two hypothetical reformd of VAT rates. The analysis is all done at micro level. It is desirable and, even necessary, if we want to know how demographic characteristics affect the behaviour of households and how taxes affect the welfare effects (progressive, regressive or neutral) of increase in VAT depend on good categories and type of households under consideration.