As we do more subnational models, the issue of regional vs national level taxes is becoming increasingly important because there is significant overlap and in many cases the largest tax flow is to the federal government. We need to correctly handle taxes for endogenous deployment of technology in the model (e.g. power sector tax credits pushing renewables or EV tax credits pushing EVs) but we need to be sure that if the costs or revenues from the taxes aren't supposed to flow to the state/region, that we don't represent them as such. A good example is worker marginal income tax rate in the model, which has a single value. The net marginal income tax rate in California is much higher than the state-only marginal income tax rate. Currently we either have to decide between correctly tracking the tax revenue flow using the state tax rate OR using the federal + state tax rate to correctly track the amount of disposable income left over. In either case, we are misrepresenting cash flows, wither to labor/consumers or to the government. To get this right, we really need to split apart regional and national tax flows, and national tax flows should not be used in the IO model (if it is a regional model).
As we do more subnational models, the issue of regional vs national level taxes is becoming increasingly important because there is significant overlap and in many cases the largest tax flow is to the federal government. We need to correctly handle taxes for endogenous deployment of technology in the model (e.g. power sector tax credits pushing renewables or EV tax credits pushing EVs) but we need to be sure that if the costs or revenues from the taxes aren't supposed to flow to the state/region, that we don't represent them as such. A good example is worker marginal income tax rate in the model, which has a single value. The net marginal income tax rate in California is much higher than the state-only marginal income tax rate. Currently we either have to decide between correctly tracking the tax revenue flow using the state tax rate OR using the federal + state tax rate to correctly track the amount of disposable income left over. In either case, we are misrepresenting cash flows, wither to labor/consumers or to the government. To get this right, we really need to split apart regional and national tax flows, and national tax flows should not be used in the IO model (if it is a regional model).