The equation estimates serve as inputs in the subsequent simulations. Two steps are needed in order to simulate the effect of the tax changes on the variables of interest. Then we have to use our estimated reduced form equations to determine how different health-care reforms affect the variables of interest. By comparing the projections with and without the tax cuts, we are able to identify the net economic effects of the alternative health-care proposals. The costs of alternative health-care reforms are set out in tables 3 through 6.
Capital stock grows in line with payroll, with adjustment for effects of legislated tax changes.
Once the cost of the reform is known, we may use the reduced-form equations to measure the impact on employment, the capital stock, and payroll payments. Employment growth now continues as before, but from a smaller base. The effect of tax changes for the other health-care reforms are computed in analogous fashion, yielding the results that are shown in Table 1 above. Note that for the single-payer system, and for employer mandates, the reform would also change the cost of hiring labor, an effect we have taken into consideration in our calculations. The computation of the increase in income tax rates that are needed to finance health reform is somewhat delicate.