Time use, computable general equilibrium and tax policy analysis

The motivation behind this paper is to provide some guidance on how to apply a general equilibrium model with home production in a real world setting to analyze economy-wide tax policies. The story line is the model of Iorweth and Whalley (2002), which we write as a mixed complementarity problem to make it ready to easily accommodate more consumers, commodities and household production functions. The model evaluates the welfare impact of introducing VAT on food in a context in which households can produce home meals for own consumption that compete with meals served in restaurants. With this model at hand we proceed as follows: first, we replicate some of the IW results and confirm that they depend on the elasticity of substitution between food and time in the household production of meals. Secondly, we move to the Spanish data and simulate the effects on welfare of different fiscal experiments. Finally, we enlarge the number of consumers and tackle some distributional issues.