The Price Effects of Indirect Taxation in the Regional Economy of Andalusia

Abstract

The goal of this paper is to use a regional social accounting matrix (SAM) to empirically study the price burden of indirect taxes in the regional economy of Andalusia, Spain, a developing region located in the south of the Iberian peninsula. The methodology we use is that of the well-known input-output subset of a SAM model. Adopting this approach we are able to capture the existent structural interdependence among productive sectors and we are able to evaluate the implicit weights and price elasticities of the different indirect taxes, as well as indicators of consumer’s welfare variations. The database used in the analysis is the SAMAND95 (Social Accounting Matrix of Andalusia, Spain, for 1995) developed by the authors. The main result of the paper is that taxes on labour use by firms carry the largest price burden of all indirect taxes, hence exerting a constraining role on the regions’ competitiveness.