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This book covers some important topics in the construction of computable general equilibrium (CGE) models and examines use of these models for the analysis of economic policies, their properties, and their implications. Readers will find explanation and discussion of the theoretical structure and practical application of several model typologies, including dynamic, stochastic, micro-macro, and simulation models, as well as different closure rules and policy experiments. The presentation of applications to various country and problem-specific case studies serves to provide an informed and clearly articulated summary of the state of the art and the most important methodological advancements in the field of policy modeling within the framework of general equilibrium analysis. The book is an outcome of a recent workshop of the Italian Development Economists Association attended by a group of leading practitioners involved in the generation of CGE models and research on modeling the economy and policy making. It will be of interest to researchers, professional economists, graduate students, and knowledgeable policy makers.

Inhaltsverzeichnis

Frontmatter

Introduction

Frontmatter

General Equilibrium Modelling: The Integration of Policy and Project Analysis

This chapter presents an overview of frontier topics of general equilibrium that are especially important to effectively integrate the policy and project dimensions of the equilibrium analysis. Project evaluation as a new frontier for modelling implies a general view of the traditional benefit-cost calculations that researchers can now afford implementing thanks to the recent computational developments that can host more realistic assumptions about model closures. A differential representation of general equilibrium permits also to unveil the opportunity cost structure associated with alternative resource uses of both policy and project evaluations. This extension enriches the policy content of both the micro and macro level of the equilibrium analysis. It takes advantage of the fact that in a modern policy and project analysis the micro-macro link exactly aggregates from the individual to the family, community, which is often the level of feasibility and impact analysis of large projects, and society level using micro and macro behavioural models that are closely integrated.
Federico Perali, Pasquale Lucio Scandizzo

Methodology and Estimation Issues

Frontmatter

Demand-Driven Structural Change in Applied General Equilibrium Models

This chapter analyzes the variations in industrial structure induced by income-sensitive patterns of final consumption, and how these changes can be captured by a multi-sector numerical model with a flexible demand system. We focus, in particular, on the estimation of parameters for an AIDADS (An Implicitly, Directly Additive Demand System) specification. We then test the latter by inserting it in the ENVISAGE global general equilibrium dynamic model, which is run under the SSP2 scenario from 2011 to 2050. It is found that time-varying income elasticity can generate sizable variations in the industrial structure. This finding has important practical implications, particularly when structural models are applied at a medium and long term horizon.
Roberto Roson, Dominique van der Mensbrugghe

Micro-Macro Simulation of Corporate Tax Reforms

Firm models are relatively rare in spite of the large number of models for households presented in the literature. The aim of this chapter is twofold. First, we illustrate the new microeconometric model on corporations currently used by Istat for revenue forecasting and policy analysis. Second, we discuss the advantages of combining microsimulation and computable general equilibrium models in simulating of corporate tax reforms.
Antonella Caiumi

Estimating an Energy-Social Accounting Matrix for Italy

This chapter describes an application of the Social Accounting Matrix (SAM) to the analysis of the economic impact of energy policies in Italy. An Energy Social Accounting Matrix (ESAM) is estimated for the year 2010 using as an input a general purpose technology-oriented model (of the MARKAL—TIMES family) representing the evolution of the Italian energy environment and a variant of the Wolsky procedure.
Marco Rao, Umberto Ciorba, Giovanni Trovato, Carmela Notaro, Cataldo Ferrarese

Analysis of Local Economic Impacts Using a Village Social Accounting Matrix: The Case of Oaxaca

This chapter describes a methodology to estimate a local economic model based on a social accounting matrix (SAM), for the district of Villa Alta within the Sierra Norte region of the Mexican State of Oaxaca. The estimates combine secondary statistics with data obtained through a direct survey. A SAM based model is then used to assess the impact of a rural development program on the local (village) and regional (state) economy.
Cataldo Ferrarese, Enrico Mazzoli

Static and Dynamic CGEs and Policy Applications

Frontmatter

A CGE Model for Productivity and Investment in Kenya

This chapter develops an application of a CGE model to analyze some important economic features and policy problems for Kenya, one of the most dynamic African countries. The CGE model developed reflects the basic structure of the Kenya’s economy and captures some of the key trade-offs affecting its policy choices, especially for what concerns aggregate growth, sustainability and inclusiveness. The results suggest that a policy strategy aimed to boost agricultural productivity and infrastructure investment would be the best choice for the long run development of the country.
Pasquale Lucio Scandizzo, Maria Rita Pierleoni, Daniele Cufari

The Political Economy of the CAP Reform in Italy

This chapter analyses the ex-ante socio-economic impact of the CAP reform on Italian agriculture and the whole economy using a micro-funded general equilibrium model which differentiates the impact at the household level. The political economy analysis of the consequences of the reform has clearly revealed the positions of farmers and agro-food industries, consumers, and farming unions concerning the issue of a total or partial implementation of decoupling. The policy analysis permits both an understanding of the possible social conflicts arising from the implementation of the reform and a unique ranking of the policy alternatives.
Antonella Finizia, Riccardo Magnani, Federico Perali

A CGE Model for Mauritius Ocean Economy

The study presented in this chapter applies a dynamic CGE model to the analysis of the “ocean economy”, a somewhat new economic construct that reflects both a renewed attention to the potential contribution of ocean resources to economic growth as well as the perception of the ocean as an endangered ecosystem. The empirical application of the study concernes the economy of Mauritius, a dynamic country that has a recently chosen to base its strategy for long term growth on the valorization of its ample and promising ocean resources. A dynamic CGE model especially designed to address some of the key issues of an ocean economy investment strategy was developed as part of a World Bank project, and is based on a large data base and a joint effort with the Statistics Mauritius and a local technical team.
Pasquale Lucio Scandizzo, Raffaello Cervigni, Cataldo Ferrarese

A Micro-Macro Simulation Model Applied to the French Economy: The Case of a Euro’s Real Depreciation

In this chapter, we use a Micro-Macro simulation model to evaluate the distributional effects of a real depreciation of the Euro on the French economy. Our Micro-Macro model consists of a microsimulation model and a CGE model which are integrated using an iterative approach. We find that a 10% real depreciation of the Euro stimulates the aggregate demand by increasing exports and reducing imports, which increases real GDP by 0.7% and reduces the unemployment rate in the economy by 2 percentage points. At the individual level, we find that the macroeconomic shock reduces poverty and, to a lesser extent, income inequality. In particular, the decrease in the equilibrium real wage slightly reduces disposable income for the employed, while the reduction of unemployment substantially increases disposable income of people who find a job, often bringing them out of poverty.
Riccardo Magnani, Luca Piccoli, Martine Carré, Amedeo Spadaro

Green and Blue Dividends and Environmental Tax Reform: Dynamic CGE Model

The challenge of climate change needs to be tackled with environmental policies carefully designed to achieve environmental benefits and avoid negative economic effects. The introduction of an environmental tax in the economic system can generate a double benefit represented by the attainment of the environmental target (first or green dividend) and other additional benefits (second/third or blue dividends) represented by gains in welfare, employment, consumption etc. In this perspective, the general equilibrium analysis is able to quantify the environmental and welfare direct and indirect effects that an environmental policy generates within the economic system. Since international environmental agreements set clear target deadlines on the reduction of GHG emissions, in this chapter a dynamic CGE model based on a bi-regional SAM framework for Italy is developed.
Francesca Severini, Rosita Pretaroli, Claudio Socci

A Sub-national CGE Model for the European Mediterranean Countries

This chapter describes the methodology used to develop a Computable General Equilibrium model with sub-national detail for the Euro-Mediterranean area: Italy, France, Spain, Portugal and Greece. The main purpose of this exercise is to perform economic assessments of climate change impacts with a finer spatial resolution compared to that offered by standard CGE models and, in doing so, to increase the comparability of and the possibility to exchange information across economic and physical impact models. Indeed, aiming to represent the high spatial heterogeneity of climate drivers and environmental impacts, both climate models and physical process models (like e.g. land use, crop growth, flood risk models) are spatially detailed. This is not the case for macroeconomic models that typically feature large geo-political blocks or at best the country as the finest investigation units. Accordingly, when physical and economic models are interfaced to produce integrated assessments of climate change impacts, there is an unavoidable loss of richness both of input and output information. Developing a sub-national resolution for the economic analysis thus offers a first useful step to measure more accurately the economic consequences of climate change, to produce an information more relevant for local planners and businesses, and also to better capture the economic feedbacks between regions which can turn to be as important as the international ones. The study addresses conceptual and practical issues related to the regionalization process, and presents simple experiments aimed to test the robustness of the regionalized structure and understand the economic implications in terms of market integration.
Francesco Bosello, Gabriele Standardi

A Regional Dynamic General Equilibrium Model with Historical Calibration: A Counterfactual Exercise

This chapter develops a regional dynamic general equilibrium model calibrated using two regional SAMs for the Italian region Valle D’Aosta for the years 1963 and 2002. A historical calibration procedure is performed over the 40 years period and ensures that the modelled tendencies perfectly reproduce the actual observed growth patterns of the main regional macroeconomic variables. The dynamic general equilibrium model provides an original and powerful tool for historical counterfactual analysis not available using standard dynamic general equilibrium models. The model is used to compare the growth path followed by the region during the period of interest with a counterfactual scenario intended to evaluate how the region would have performed in the case of a contraction of the transfers from the national government to the regional government and the families.
Stefania Lovo, Riccardo Magnani, Federico Perali
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