General equilibrium model with the entrepreneurial sector for the Russian economy

Abstract

This paper proposes a general equilibrium model with the entrepreneurial sector for the Russian economy. The novelty of the model lies in several points. First, the model is a small open economy. Second, it includes the entrepreneurial sector. Third, the model reflects the main features of the Russian economy. Five experiments were conducted, for which steady states and transitions were computed. These experiments included: (1) an export price shock, (2) redistribution of government consumption between the corporate and entrepreneurial sectors, (3) relaxation of collateral requirements, (4) a credit rate subsidy for entrepreneurs, (5) VAT for entrepreneurs. The export price shock results in lower entrepreneurial output due to higher wages in the short run, but in the long run the positive effects of increased demand and assets lead to higher output. Increased government consumption of entrepreneurial goods leads to a reallocation of resources from the corporate sector to the entrepreneurial one. The relaxation of collateral requirements leads to a sharp increase in entrepreneurial investment and capital and a decline in the number of entrepreneurs, which means that they become bigger. The credit rate subsidy leads to an increase in capital in the entrepreneurial sector, and then in output. The cost of subsidies leads to a decrease in lump-sum transfers, but this does not lead to a significant change in household consumption. The introduction of a value-added tax on entrepreneurial goods leads to a redistribution of resources from the entrepreneurial sector to the corporate one, lower household consumption and higher GDP.