MODELLING THE REGIONAL CONSEQUENCES OF COMMONWEALTH POLICY - THE CASE OF THE FRINGE BENEFITS TAX

A multi-regional computable general equilibrium model is used to investigate both the economy-wide and regional consequences of the fringe benefits tax in the long-run. The model is a hybrid “top-down" / "bottom-up" model: economic activity is modelled in two regions (Western Australia and the Rest of Australia) with results at the national level being an aggregation of the results for these two regions. Top-down modelling is then undertaken of sub-state regions within Western Australia. However, a significant share of the economic activity of one sub-state region - the PiIbara - is modelled within the bottom-up component of the mod el. The paper focuses on results at three regional levels: national, state, and sub-state. It is found that this Commonwealth policy, despite having relatively uninteresting consequences at the macroeconomic level, nevertheless has a significant impact on the distribution of economic activity across the country. Two features of the modelling are important in elucidating the regional consequences of the Commonwealth policy: the modelling of the policy responses at the state government level, and detailed modelling of regional cost and sales differences.