Earlier or Later in CGE–Models:The Case of a Tax Reform Proposal

The German Income Tax Reform 2000 was welcomed by the public asa step towards unleashing lurking growth potentials. Nonetheless, in thecourse of the year 2001a dispute arose, centering around the question,whether or not the later stages of the German Income Tax Reform shouldbe brought forward as a means of stimulating the stuttering engine of theGerman economy. Abstracting from the seemingly Keynesian viewpoint,we analyze the individual and social welfare effects in order to find theanswer of what to do. The paper presents the welfare analysis of theearly German Income Tax Reform within a simplified CGE model of theAuerbach–Kotlikoff type....