Research Paper 11: Ex ante evaluation of reform measures with the PuMA model

One of EcoAustria's main research competencies is the ex-ante evaluation of economic and social policy measures, e.g. in tax, social or labor market policy, or the analysis of the economic consequences of other developments such as education, migration or technological progress. The simulations at EcoAustria are primarily carried out using the dynamic equilibrium model PuMA ("PUblic Policy Model for Austria and other European Countries"). Current analyses based on PuMA show that the reduction of the first, second and third stages of the income tax rate to 20, 30 and 40 percent respectively, as well as the reduction of corporation tax from 25 percent to 21 percent, as envisaged in the current government program, would trigger considerable economic effects: The measures will result in gross domestic product being 1 to 1.3 percent higher in the medium to longer term than without the reform measures. In addition, net income, consumption and investment will increase and employment will rise by 35,000 in the medium to long term. Thanks to the additional growth triggered, these reform measures are 40 to 50 percent self-financing.

Methodologically, the PuMA model belongs to the "computable general equilibrium models (CGE)" model group. PuMA takes into account the specific circumstances of a country, particularly with regard to the tax system, social security and the labor market. Employment and population are differentiated according to age and education groups. The authors of the PuMA model, Johannes Berger, Head of the Labor Market and Social Security Research Unit, and Ludwig Strohner, Head of the Public Finance Research Unit at EcoAustria, have currently calibrated the model for Austria and 14 other European countries, i.e. for around 85 percent of the EU population. This enables comparative analyses of the impact of reform measures or demographic developments within Europe. A previous version of PuMA, the EU-LMM equilibrium model, was developed by the authors for the European Commission's Directorate-General for Employment. EcoAustria Research Paper 11 provides an update of the detailed technical documentation of the model.