Applied General Equilibrium Model Research Articles

Trade Distortion Indexes and Multi-Regional Age Models: The Case of the Common Agricultural Policy

In this paper, we build on the insights of the Trade Restrictiveness Index (TRI) approach by computing uniform tariff equivalents for the European Union primary sector using the Global Trade Analysis Project model and its associated data base. The main contribution of the paper is to extend and adapt the definition of the TRI, in order to make it consistent with the structure of a multi-regional Applied General Equilibrium model. In this perspective, we define a “modified TRI” based on the direct welfare evaluation (rather than on the Balance of trade function) and extend its definition in order to take into account the terms of trade impact. Finally, an empirical application of the index is provided with reference to two policy scenarios: the liberalization of the Common Agricultural Policy and the implementation of the “Agenda 2000” reform.

The 1990 Trade Liberalisation Policy of Turkey: An Applied General Equilibrium Assessment

I use a static multi-sector, multi-labour, multi-household Applied General Equilibrium (AGE) model for Turkey to show that the trade policy implemented by Turkish policy-makers in the 1990s is not trade diverting. Aggregate welfare rises by 0.6% of the consumer income. Most importantly, since agriculture and traditional the rural income), while urban groups are worse off (-0.5% of the urban income). It is also shown that overall income inequality declines by 1.1-1.7%, and that its main source is the inter-income inequality between urban and rural areas, which decreases by 8.9- 14.7%. [D58, F14, F17]

Analysis of the policies and measures for promoting electricity from renewable energy sources using Applied General Equilibrium Model

Analysis of the policies and measures for promoting electricity from renewable energy sources using Applied General Equilibrium Model

Book reviews

EconomicaVolume 67, Issue 268 p. 605-613 Book reviews First published: 28 June 2008 https://doi.org/10.1111/1468-0335.00226AboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinked InRedditWechat Abstract Victor Ginsburgh and Michiel Keyzer, The Structure of Applied General Equilibrium Models James M. Buchanan and Roger D. Congleton, Politics by Principle, not Interest: Toward Non-discriminatory Democracy A. Colin Cameron and Pravin K. Trivedi, Regression Analysis of Count Data Ken Binmore, Game Theory and the Social Contract Walter Hettich and Stanley L. Winer, Democratic Choice and Taxation: A Theoretical and Empirical Analysis S. G. Medema and W. J. Samuels, A History of Economic Thought: The LSE Lectures Oded Stark, Altruism and Beyond: An Economic Analysis of Transfers and Exchanges within Families and Groups Volume67, Issue268November 2000Pages 605-613 RelatedInformation

Economy-Wide Effects of Forest Policies: A General Equilibrium Assessment from Vietnam

Using Vietnam as a case study, we employ an Applied General Equilibrium (AGE) model to test three policy options for managing commercial forestry. Specifically, we examine the impact of an export ban, an increase in the ad valorem royalty by 100%, and an increase of 100% in the export tax. A ban on exports raises domestic capital formation, benefits the domestic consumer, and decreases deforestation. The other two policies have little effect on the utility of the domestic household. The findings demonstrate the need to assess forestry policies in the context of the broader economic structure

Trade Liberalization and Foreign Direct Investment: An Applied General Equilibrium Model for Costa Rica

This paper quantifies the welfare impact of unilateral trade liberalization and computes the optimal tariff structure for Costa Rica in the presence of trade-policy- induced international capital flows and foreign capital taxation. For this, an applied general equilibrium model integrating trade, capital flows and international capital income taxation is used. The model has been calibrated to a 1990-91 data set for the economies of Costa Rica and a group of OECD countries. In the model, foreign capital income is taxed by host countries and the tax-credit system operates in foreign investors home countries. Results for Costa Rica show that complete trade liberalization ends up being welfare-reducing, as it leads to an outflow of capital and loss of tax revenue which more than offset the efficiency gains from an enhanced resource allocation. The optimal tariff structure for the Costa Rican economy turns out to be a mixture of import tariffs and subsidies, though of a relatively small level.

The Distributional Impacts of Policies for the Control of Transport Externalities: An Applied General Equilibrium Model

The paper uses an applied general equilibrium model, calibrated to the situation in Belgium in 1990, to evaluate the welfare effects of small policy changes in the presence of transport externalities. The model incorporates three types of externalities: congestion, which has a feedback effect on the behaviour of the economic agents, air pollution and accidents. The model is used to perform balanced budget incidence simulations in which the marginal cost of public funds is calculated for four alternative policy instruments: a lump sum tax, the labour income tax, the fuel taxes and peak road pricing. For each of these instruments the marginal cost of public funds (MCF) is calculated. The results of the model are compared with those of a model in which congestion, air pollution and accidents are assumed to remain constant at their initial level. The information provided by this type of exercises is useful for two purposes. First of all, it serves as an input in cost-benefit analyses. The non-tax costs of a public project should be multiplied by the MCF of the instrument used to finance it, in order to make a correct comparison with its benefits. Secondly, the MCF is a useful tool in deciding whether a revenue neutral policy reform is welfare improving or not. From the theory of optimal taxation in the presence of externalities, we know that when taxes are set optimally, the MCF is equalized across all tax instruments. Starting from a non-optimal tax system, social welfare is increased (decreased) when the tax with the highest welfare cost per additional unit of government revenue is reduced (increased) and when simultaneously the tax with the lowest welfare cost per additional unit of government revenue is raised (reduced). The paper contributes to the literature in two ways. First of all, it includes non-identical individuals. Therefore, the evaluation of the policy instruments takes into account the equity effects of the policy reforms. The second contribution is related to the way in which the externalities are modelled: the feedback effect of congestion is explicitly taken into account and the value of a marginal time saving is determined endogenously in the model. The structure of the paper is as follows. After the introduction, we first describe the general characteristics and the specification of the applied general equilibrium model, with a particular attention to the modelling of the externalities. It is followed by a brief description of the initial equilibrium, which corresponds with the situation in Belgium in 1990. Next, we discuss the results of the balanced budget incidence simulations. The final section concludes and describes some extensions to the model. The simulations show that the ranking of the instruments in terms of their marginal cost of public funds changes significantly when the effect of the reform on the externalities is taken into account. Secondly, regardless of the way in which the tax revenue is recycled, the welfare gain of peak road pricing is higher than that of the fuel tax. When the externality tax revenue is recycled through the lump sum tax the welfare gains are higher for the poorer than for the richer quintiles. On the other hand, the main beneficiary of revenue recycling through the labour income tax is the richest quintile. Consequently, when the social welfare function gives a higher weight to the welfare of individuals belonging to the poorer quintiles, the distributional impacts of the policy reforms cause the welfare gain to be higher when the revenue is recycled through an increase in the lump sum transfer rather than through a lower labour income tax rate.

Applied General Equilibrium Modeling with MPSGE as a GAMS Subsystem: AnOverview of the Modeling Framework and Syntax

This paper describes a programming environment for economic equilibrium analysis. The system introduces the Mathematical Programming System for General Equilibrium analysis (MPSGE, Rutherford 1987) within the Generalized Algebraic Modelling System (GAMS, Brooke, Kendrick and Meeraus (1988)). This arrangement exploits GAMS‘ set-oriented algebraic syntax for data manipulation and report writing. The system based on the tabular MPSGE input format provides a compact, non-algebraic representation of a model‘s nonlinear equations. This paper provides an overview of the modelling environment and three worked examples in tax policy analysis.

The Impacts of the Fiscal-Consolidation Policies in Developed Economies under the Free Trade Agreements: A Preliminary Report

This paper clarifies the impacts of the fiscal-consolidation policies in developed economies when the economies are involved in a Free Trade Agreement (FTA), using a perfect-foresight dynamic Applied General Equilibrium (AGE) model of global trade since some macroeconomic policies which cannot be captured in a static framework. The model in this paper solves for the set of inter- and intratemporally consistent prices, and we obtained the following results. First, the response of the global economy to the fiscal-consolidation policies in high-income countries would be crucial, and the increase in the foreign capital inflow is directly related to the welfare gain. Second, there would be no negative effect of the fiscal-consolidation policies in developed countries on lower income economies. Finally, an additional implementation of traiff liberalization to the fiscal-consolidation policies may raise the growth rate of not only low-income countries, but also middle-income ones.

Market Integration, Scale Economies and Labor Market Imperfection in an Applied General Equilibrium Model

This paper provides general-equilibrium estimates of the welfare gains and unemployment changes that may be expected from the single European market. The investigation uses a multicountry, multisector applied model with imperfection. The analysis is performed assuming three alternative wage determination mechanisms (flexible wages, wage indexation and efficiency-wage model). Labor market imperfection allows for the existence of involuntary unemployment rate. The main contribution in the paper is that economic integration could imply deterioration in employment in Europe.

Trade policy subtleties with multinational firms

Regional trade blocks must specify domestic-content rules that define the conditions under which a good qualifies as ‘domestic’ and so may be freely traded within the block. This paper analyzes such rules, focussing on oligopolistic industries in which foreign multinationals rely much more on imported intermediate inputs that do domestic firms. In such a situation, we argue that domestic content provisions are anti-competitive, reducing overall final output of the industry, and shifting rents to domestic firms. These ideas are examined analytically and then numerically using an applied general-equilibrium model of the North American auto industry.

Applied general equilibrium models for energy studies: a survey

The importance of energy in any economy, developed or underdeveloped, became clear after the first oil shock in 1973. Since then, different studies were carried out to formulate energy policies and to study their impact on the economies. Since energy policy issues are related to various aspects of the economy such as price formation, output determination, income generation and distribution, consumption behaviour, government operation, etc., a coherent and systematic mechanism is required for such analysis. By offering such a framework of analysis, AGE models gained popularity among energy modellers. In the 1980s, the environmental issues have gained importance, and the focus shifted towards curbing and containing emissions of environmentally unfriendly gases resulting from the use of energy, AGE models, because of their capability to capture the complexities of the economy, have found relevance in analysing the economic impacts of controlling pollution and greenhouse gases. This paper surveys the literature on such general equilibrium models as applied to energy studies, and reports their special features, evolution through time as well as their limitations.

An object-oriented knowledge-based approach for formulating applied general equilibrium models

This paper proposes and illustrates an object-oriented, knowledge-based approach to formulate Applied General Equilibrium (AGE) models. In this framework, an AGE model is viewed as a collection of structured objects from the real world such as economic agents and prices. A frame representation of major objects in AGE models for world trade is presented. This representation can be used as the structure of a model base in a loosely coupled intelligent modeling system. In such a system, constructing an AGE model appears to be an intuitive rather than an abstract process. This intuitive process needs more understanding of substance of economics and the logic underlying the problem at hand rather than mathematical notation.

Comment on Computable General Equilibrium Models and Monetary Policy Advice

The authors construct an applied general equilibrium model to be used in the monetary policy advice process. Applied general equilibrium models are the tools used to evaluate alternative tax policies and to estimate the consequences of changes in trade policies. However, to date they have not been used in the monetary policy advice process. l A question then is why haven't applied general equilibrium models been used in the monetary policy selection process? Some history is needed in order to answer this question and to explain why the direction taken by the authors is somewhat radical and, I think, promising. In the sixties and early seventies the basic Keynesian macroeconometric model was established theory. Even the monetarist detractors, when they were explicit, argued about the values of the coefficients of some of the equations. These models with their consumption function, investment equation, money demand function, and Phillips Curve fully integrated the forecasting and policy analysis process. With this framework, given the current position of the economy and the value of the policy variables, the models predicted the position of the economy next period. Thus the Keynesian macroeconometric framework was ideally suited to evaluate the consequences of alternative policy actions. Indeed, a macroeconometric model, along with control theory, could be used to determine the optimal policy action today given an objective function specified by the political process. Two problems developed with this practice for macroeconometric forecasting and policy evaluation. The first was that attempts at providing theoretical underpinnings for these largely empirically determined macro equations discovered a fundamental inconsistency between the theoretical and macroeconometric tradition in economics. Lucas (1976) in his famous critique of macroeconometric policy evaluation articulated and illustrated this inconsistency and argued that the econometric tradition was in need of major reform. Essentially an implication of theory is that the equations that define the law of motion of the economy are not invariant to the rule by which policy is selected. Questions that the Fed is required by the 1946 Employment Act and 1978 Humphrey-Hawkins Act to answer are just not well posed in the language of economic theory. Indeed, we now know even if a policy rule is best (i) 1. Applied general equilibrium models have been used to evaluate the welfare consequences of different rates of inflation, that is, the welfare consequences of the inflation tax. They have not been used to evaluate monetary policies designed to stabilize the economy.

Applied general equilibrium modeling for environmental policy analysis

Incorporating environmental regulation and its impact in general equilibrium models has by now a twenty years long tradition. In 1970, Leontief extended his input-output approach to quantify environmental repercussions on the economic structure. The shortcomings of this model, such as fixed coefficients in technological processes or zero price and income elasticities of demand, can be resolved by using a quantitative general equilibrium model. The objective of this paper is to employ such a model to quantify the economic effects of environmental policy and to present a cost-effectiveness analysis of different market instruments in environmental policy.

Complementarity and increasing returns in intermediate inputs

Conventional analysis in the trade-industrial-organization literature suggests that, when a country has some market power over an imported good, some small level of protection must be welfare improving. This is essentially a terms-of-trade argument that is reinforced if the imported goods are substitutes for domestic goods produced with increasing returns to scale, goods that are initially underproduced in free-trade equilibrium. This paper notes that this result may not hold when (1) the imports are intermediates used in a domestic increasing-returns industry, and/or (2) the intermediates are complements for domestic inputs produced with increasing returns. We then demonstrate such an outcome with respect to Mexican protection against imported auto parts using an applied general-equilibrium model of the North American auto industry.

Growth dynamics in a general equilibrium macroeconomic model for India

Medium-run growth dynamics of a “modern” sector are examined in a simple aggregative general equilibrium macromodel. The effect of agriculture-industry interactions on the growth path are then analyzed in a ten-sector disaggregated applied general equilibrium model (AGEM) for agriculture policy analysis. The model endogenously generates a relatively rigid mark-up and large quantity response to shocks. The latter explains endogenous growth amplifications. The model is used to understand the Indian growth experience. The emphasis on dynamics helps to identify policy interventions that, by changing parameters in desirable directions, can cause an amplification in growth.

An Applied General Equilibrium (AGE) analysis of a policy designed to reduce the household consumption of wood in the Sudan

The Sudan, along with all Sahelian countries, faces urgent environmental problems caused, in part, by the clear-cutting of scrub for firewood. In this paper, we analyze the economic consequences of a policy often proposed to reduce the consumption of firewood. Specifically, we simulate the policy of introducing more efficient wood burning stoves into households by using an Applied General Equilibrium (AGE) model. The results indicate that the anticipated reduction in the economy-wide demand for wood, based on the increase in the technical efficiency of the stoves, is not fully realized.

Discrete plant-location decisions in an applied general-equilibrium model of trade liberalization

Discrete Plant-Location Decisions in an Applied General-Equilibrium Model of Trade Liberalization. - This paper makes a first step toward a more realistic approach to increasing-returns trade models in which firms face discrete choices about the numbers and locations of their plants. The model is applied to the North American auto industry in the NAFTA context. Results include: (1) production appears to be excessively geographically diversified initially; (2) autos are produced in fewer locations as trade barriers are lowered; (3) a “non-monotonicity“ case is produced in which a plant is first closed and then reopened as trade barriers are progressively lowered; (4) an example of the misleading nature of marginalist analysis is presented in which plants in Canada and Mexico increase production when locations are fixed but close down when locations are endogenous and optimized.

The Sensitivity Analysis of Applied General Equilibrium Models: Completely Randomized Factorial Sampling Designs

The authors propose a method for estimating the population mean of a distribution of solution values from applied general equilibrium models subject to parameter uncertainty. The method is illustrated by demonstrating that the marginal excess burden of the U.S. taxation system may be robustly bounded with a high confidence. Copyright 1992 by MIT Press.