Working Paper: CGE model with fiscal sector for Latvia

Authors: Konstantīns Beņkovskis, Eduards Goluzins, Oļegs Tkačevs 

Working Paper 1/2016 

Abstract: This paper describes the first CGE model for Latvia that consists of 32 industries, 55 products and seven categories of final users. To construct the model we use Latvia's National Supply and Use tables for 2011 from the WIOD database. Special attention is devoted to the fiscal block: the model consists of five government expenditure types and five revenue sources, including such four major taxes as the personal income tax (PIT), state social insurance mandatory contributions (SSIMC), value added tax (VAT) and excise tax. We also introduce an endogenous shadow economy, the size of which depends on the level of tax rates and economic activity. These features of the model allow us to obtain rich and detailed conclusions about the effect of several fiscal measures on Latvia's economy, both in aggregate and by sector.

Keywords: CGE model, Latvia, fiscal policy JEL codes: D58, C68, H2, H6