Analyzing the Distributive Effects of Fiscal Policies
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particular set of assumptions regarding the economic shifting of taxes and of the allocation of benefits from public expenditures. Although most of these assumptions are standard and are supported by a large and wellestablished body of literature, there is no guarantee that the assumptions actually hold true in different economic environments. In addition, the calculations in conventional incidence analysis rarely incorporate information on how a certain program or policy influences the behavior of individuals (beneficiaries relative to nonbeneficiaries in the case of expenditure programs or labor supplied or commodities purchased in the case of taxes). The analysis does not typically allow for secondary effects or general equilibrium effects. The analysis also equates benefits and costs with budgetary outlays or tax revenues collected, ignoring changes in individual welfare arising from changes in consumer surplus or the excess burden of taxes. Thus conceptually, the incidence analysis rests on several strong operational assumptions: benefits received by individuals equal the costs of providing those benefits; individuals give equal value to transfers received and each dollar taxed away; there is perfect translation of taxes to consumers; and, typically, no evasion or illegal behaviors are taken into account. TBM models. Conventional incidence analysis may not be adequate when the specific details of policy options or changes in the macroeconomic environment need to be accounted for and incorporated into the analysis. TBMs are a natural extension of computer programs that typically simulate distributions of disposable incomes across a sample of real households—from national microdata sets—after alternative policy scenarios are introduced. The common structure of TBMs for redistribution analysis comprises three elements: • A microdata set containing the economic and sociodemographic characteristics of a sample of individuals or households • The rules of the policies to be simulated—such as the budget constraint facing each agent, the tax structure and key parameters, and eligibility for social transfers • A theoretical model of the behavioral response of agents—see Bourguignon and Spadaro (2006). In practice, TBMs typically differ in the final element; in fact, not every TBM models behavioral responses of agents. However, static or arithmetic models are not necessarily inferior to behavioral models. There may be