Computable General Equilibrium Analysis Research Articles

The EU Decarbonisation Roadmap 2050: What Way to Walk?

We carry out a detailed CGE (Computable General Equilibrium) analysis of the EU Decarbonisation Roadmap 2050 on a macroeconomic and on a sectoral level. Herein, we study a Reference scenario that implements existing EU policies as well as 3 unilateral and 3 global climate action scenarios. We identify global climate action with international emissions trading and the ful l equalization of CO2 prices across all (EU) sectors as a reasonable policy option to avoid additional costs of the Decarbonisation Roadmap to a large extent. This policy option may include CDM (Clean Development Mechanism in the sense of ‘where’-flexibility) in an extended form if there are countries without emissions caps. Moreover, we identify diverse sectoral effects in terms of output, investment, emissions and international competitiveness. We conclude that the successful realization of the EU Decarbonisation Roadmap probably requires a wise and joint consideration of technology, policy design and sectoral aspects.

Impacts of the Elimination of Tariffs on Agricultural Products and Food Industry Products in Urban and Rural Households of Syria: Computable General Equilibrium Analysis

Impacts of the Elimination of Tariffs on Agricultural Products and Food Industry Products in Urban and Rural Households of Syria: Computable General Equilibrium Analysis

Economy Wide Impact of the Trade Integration between Japan and India: A Computable General Equilibrium Analysis

Japan and India signed the much-awaited Comprehensive Economic Partnership Agreement (CEPA) on 16th February 2011. The CEPA will eliminate tariff on goods that account for 94% of their two way trade over ten years and will boost bilateral trade and investment. Indian exports which were subject to rigid standards will find it easier to enter Japanese markets. On the other hand, reduction of tariffs would help Japanese exports to exploit the growing Indian market. In this background, the study evaluates the economy wide impact of the proposed CEPA between India and Japan at 2020. The study has used a widely recognized global Computable General Equilibrium (CGE) model. Results show a marginal increase in output growth for India and Japan in 2020 after tariff reduction compared to Business as Usual (BAU) scenario. A marginal export growth is expected for both the countries compared to BAU 2020. A fair amount of trade creation within these two countries is expected to occur. India would likely to increase its export to Japan by I8.25%, while for Japan it will be only 4.65% by 2020. The proposed CEPA will also improve the welfare of both the countries at 2020. An important finding of the study is that in spite of tariff liberalization in agriculture sector which is protected through stringent tariff and non-tariff barriers, Japan will witness considerable welfare gain. On the whole, it reflects that compared to Japan, India is expected to gain more during the 2010-2020 from the successful implementation of CEPA. The triple disasters (earthquake, Tsunami and radiation leaks) in Japan in March 2011 will have short-term negative impacts on the economy but is unlikely to affect the expected gains from CEPA between India and Japan. The short negative impact may be significant but in the long-run Japanese economy will expand through reconstruction efforts and return to productive activities — leading towards enhanced economic cooperation between the two countries.

A Regional Computable General Equilibrium Analysis of Property Tax Rate Caps and a Sales Tax Rate Increase in Indiana

We use a regional computable general equilibrium (CGE) model and Indiana data to examine both the short-run and the long-run effects of property tax rate limits and an increase in the sales tax rate. We find that the property tax caps and sales tax rate increase have a relatively small impact on aggregate economic measures in the short run and a positive effect in the long run. Higher-income households experience larger increases in income than lower-income households in terms of the dollar amount of the increase, but lower-income households experience larger gains as a percentage of labor income. The value of output (sales) increases in the long run with construction, certain manufacturing industries, and wholesale trade experiencing the largest increases.

International Trade, Environment and Market Imperfection: A Computable General Equilibrium Analysis for India

The purpose of this article is to understand general equilibrium impacts of international trade and globalization on social welfare and environmental emission caused on account of energy consumption by industries and households. We applied Computable General Equilibrium (CGE) modelling as the relevant methodology following Shoven and Whalley (1984). By constructing an energy/environmental Social Accounting Matrix (SAM), this article attempts to measure the effects of trade liberalization on different macroeconomic variables, energy consumption and green house gas (GHG) emission. We simulate various trade related policies like import liberalization, foreign capital inflow and use of energy saving technologies under both perfect and monopolistic competition.

Can Technological Innovation Help China Take on Its Climate Responsibility? A Computable General Equilibrium Analysis

This paper examines the effectiveness of China’s indigenous RD 2) Innovation policies including public RD 3) Carbon taxation can create significant carbon-saving benefits and fulfill climate target, but this achievement is at the cost of economic losses. The induced technical improvement, however, can partially mitigate the deadweight loss incurred by carbon tax distortion.

Are green hopes too rosy? Employment and welfare impacts of renewable energy promotion

In view of pressing unemployment problems, policy makers across all parties jump on the prospects of renewable energy promotion as a job creation engine which can boost economic well-being. Our analytical model shows that initial labor market rigidities in theory provide some scope for such a double dividend. However, the practical outcome of renewable energy promotion might be sobering. Our computable general equilibrium analysis of subsidized electricity production from renewable energy sources (RES-E) in Germany suggests that the prospects for employment and welfare gains are quite limited and hinge crucially on the level of the subsidy rate and the financing mechanism. If RES-E subsidies are financed by labor taxes, welfare and employment effects are strictly negative for a broad range of subsidy rates. The use of an electricity tax to fund RES-E subsidies generates minor benefits for small subsidy rates but these benefits quickly turn into significant losses as the subsidy rate exceeds some threshold value.

Aid, spending strategies and productivity effects: A multi-sectoral CGE analysis for Zambia

Numerous econometric studies fail to detect a significant and robust relationship between international aid and economic growth in the recipient countries. Dutch Disease effects might be responsible for this result. This paper examines the relation between aid and its effectiveness in a multi-sector multi-household Computable General Equilibrium (CGE)-framework. Given that international transfers to African countries increasingly take the form of general financial support to the government, different spending strategies and their macroeconomic, sectoral and distributional effects are evaluated in a two-stage simulation making a distinction between immediate direct effects and possible long-run effects from increased productivity. The presence of sector-specific factors weakens Dutch Disease effects and shifts the burden of adjustment primarily to other exporting sectors. While the model simulates the effects of additional aid in Zambia it can be used as a blueprint for other African countries.

Biofuels and economic development: A computable general equilibrium analysis for Tanzania

Biofuels could offer new economic opportunities for low-income countries. We use a recursive dynamic computable general equilibrium model of Tanzania to evaluate different biofuels production options and estimate their impacts on growth and poverty. Our results indicate that maximizing the poverty-reducing effects of biofuels production in countries like Tanzania will require engaging and improving the productivity of smallholder farmers. Evidence shows that cassava-based ethanol production is more profitable than other feedstock options. Cassava also generates more “pro-poor” growth than sugarcane-based systems. However, if smallholder yields can be improved rather than expanding cultivated land, then both sugarcane and cassava out-grower schemes generate similar pro-poor outcomes. We conclude that, in so far as the public investments needed to establish a biofuels industry are consistent with other development needs, then producing biofuels will enhance economic development in countries like Tanzania.

Impacts of Changes in Exchange Rate and International Prices on Agriculture and Economy of the Sudan: Computable General Equilibrium Analysis

<p>Changes in exchange rate and international prices greatly affect food availability, the agricultural sector, and Gross Domestic Product (GDP). This study quantifies the effects of change in exchange rate and world prices on Sudan’s agricultural production, imports, exports, and GDP. Special emphasis has been placed on sorghum and wheat, the main food grains. A Standard Computable General Equilibrium model has been developed and used for the analysis. The main objective is to contribute to policy-making process for enhancing food security and social welfare in the Sudan<strong>.</strong></p> <p>Currency depreciation would reduce wheat imports and increase its domestic production, increase sorghum export, increase domestic output and export of sesame and cotton, and improves GDP; and vice versa for appreciation. Appreciation favors urban (wheat) consumers, whereas depreciation favors rural (sorghum) consumers.</p> <p>Increasing world price of wheat would decrease its imports, whereas that of sorghum would encourage its production and export, and increase domestic food prices. GDP decreases due to investment reduction<strong>. </strong></p> <p>It is recommended that wheat import should be conditioned on hard currency availability and food gap, while maintaining stable exchange rate that strike a balance between encouraging sorghum exports and wheat imports. It is also recommended to encourage innovation of fast food from traditional grains to curb the shift to wheat consumption.</p>

Rigid wage-setting and the effect of a supply shock, fiscal and monetary policies on Chinese economy by a CGE analysis

The purpose of this paper is to present a computable general equilibrium (CGE) model of the Chinese economy which includes rigid wage-setting and integration of real and financial sectors, and to apply it to a quantitative evaluation of the oil price changes and the fiscal and monetary policies. The policy simulation shows whether the wage rate is flexible or rigid is crucial for the evaluation of various policy measures. Furthermore, the fields of application of the model are extended from the industry-related problems to the macroscopic ones such as inflation, stabilization policies and so on.

Labour Supply Curves for EU Member and Candidate States: An Applied General Equilibrium Analysis

This paper introduces a more sophisticated modelling of the labour market functioning of the European member and candidate states through the introduction of labour supply curves in an applied general equilibrium model. A labour supply curve offers a middle way in labour supply modelling, sitting between the two commonly adopted extremes of spare capacity and full employment. The first part of the paper outlines the theoretical foundation of the labour supply curve. Real world data is then used to derive labour supply curves for each member state, along with Croatia and Turkey. Finally, the impact of the newly specified labour markets on the results of an illustrative scenario involving reform of the common agricultural policy is explored. The results of computable general equilibrium analysis with the labour supply curve confirm the theoretical expectation that modelling the labour supply through an upwards-sloping curve produces results that lie between the extremes of spare capacity of the labour factor and fully employed labour. This specification captures a greater degree of heterogeneity in the labour markets of the member and candidate states, allowing for a more nuanced modelling of the effects of policy reform, including welfare effects.

On the optimal implementation of agricultural policy reforms

Economic analyses of farm policies generally focus on long run, steady state impacts while the transition dynamics are often overlooked. In this paper we develop a determinist dynamic computable general equilibrium analysis allowing agents to form adaptive versus perfect expectations. Using an illustrative CAP reform scenario, we simulate an abrupt versus a gradual implementation of this reform. Our results show that if economic agents are able to perfectly anticipate the impacts of the reform, delaying its implementation is never optimal. On the other hand, if agents gradually learn from market developments, we find some cases where a gradual implementation of this reform is welfare improving. Such gradual implementation allows minimizing adjustment costs.

ECONOMIC IMPACT ANALYSIS OF PORT DEVELOPMENT ON THE SOUTH AFRICAN ECONOMY

AbstractPorts have been regarded as economic infrastructure and catalysts for the economies they serve, and it is evident that the associated development would generate economic benefits. In this paper, the economy‐wide impacts of port development in South Africa are examined via a computable general equilibrium analysis. Central to the analysis is to make quantitative contributions to the understanding of the impacts of port investment and changes in freight costs on the national economy. The results support the economic significance of port development, as a means of promoting growth, trade and employment, in South Africa.

Payroll Taxes and the Labor Market: A Computable General Equilibrium Analysis

This study uses a computable general equilibrium model to analyze the ef fects of eliminating Colombia’s parafiscal taxes, which finance social programs. In the model, these are sbstituted by alternative financing sources: VAT, indirect taxes or taxes on capital. The results show that elimination of parafiscal taxes produces a one percentage point decrease in the unemployment rate, as long as these are not substituted by other taxes. However, when other taxes are substituted for parafiscal taxes, there may not be any ef fect on the unemployment rate. This implies that eliminating parafiscal taxes does not produce the effects expectedby a partial equilibrium analysis, that is, a significant reduction in the unemployment rate.

The economic impact of water tax charges in China: a static computable general equilibrium analysis

This paper presents a static computable general equilibrium model of the Chinese economy with water as an explicit factor of production. This model is used to assess the broad economic impact of a policy based on water demand management, using water tax charges as a policy-setting tool. It suggests that imposing water taxes can redistribute sectoral water use and lead to shifts in production, consumption, value added, and trade patterns. Another important finding is that water taxes imposed on the agricultural sector drive most of the effects.

Afforestation and timber management compliance strategies in climate policy. A computable general equilibrium analysis

This paper analyzes the role of forest-based carbon sequestration in a unilateral EU27 emissions reduction policy under a Global Computable General Equilibrium (CGE) framework. Forestry mitigation is introduced into the model relying on carbon sequestration curves provided by a global forestry model. The structure of the original CGE is extended to consider land use change and timber supply effects, resulting from the use of forest sinks to reduce carbon emissions. Results show that afforestation and timber management could lead to substantially lower policy costs. By using forest-carbon sinks it is possible to achieve the 30% emissions reduction target with an additional European effort of only 0.2% of GDP compared with the cost of a 20% emissions reduction without forestry. Carbon price is also reduced, by approximately 30% in 2020. European forest-carbon sequestration may have, however, the perverse effect of increasing timber production in areas of the world which already have high deforestation rates. A sensitivity analysis on main parameters confirms the robustness of our results.

A never-ending debate: demand versus supply water policies. A CGE analysis for Catalonia

Water scarcity is a long-standing problem in Catalonia, as there are significant differences in the spatial and temporal distribution of water throughout the territory. There has consequently been a debate for many years about whether the solution to water scarcity must be considered in terms of efficiency or equity, the role that the public sector must play and the role that market-based instruments should play in water management. The aim of this paper is to analyse the advantages and disadvantages associated with different policy instruments, from both a supply and a demand viewpoint, which can be applied to water management in Catalonia. For this purpose, we use a computable general equilibrium (CGE) model, in which we introduce an ecological sector that allows us to analyse the environmental and economic impact of the alternative policies simulated. The calibration of the exogenous variables of the CGE model is performed by using a social accounting matrix (SAM) for the Catalan economy with 2001 data. The results suggest that taking into account the principle of sustainability of the resource, the policy debate between supply and demand in water policies is obsolete and a new combination of policies is required to respect the different values associated with water.

Estimating the Impacts of a Reduction in the Foreign-Born Labor Supply on a State Economy: A Nested CGE Analysis of the Idaho Economy

This analysis examines the effects of reducing the supply of foreign-born labor on the Idaho economy. Estimates of labor usage by industry sector are obtained from governmental and non-governmental data sources and are incorporated into a 14-sector nested computable general equilibrium (CGE) model with five primary factors of production consisting of capital and four different labor groups (foreign-born less educated, native-born less educated, foreign-born more educated, and native-born more educated). The results of the model indicate that at the expected elasticities of substitution between similarly educated native-born and foreign-born labor, the reduction of the foreign-born less educated labor supply modestly increases the demand for native-born less educated labor while causing reductions in state GDP, total economic output, and household utility. The importance of the elasticities of substitution between the various labor groups in influencing the impact results is discussed and a sensitivity analysis performed. The CGE results are then compared to those of an input-output model: the differences are discussed.

Modelling the Effects of Immigration on Regional Economic Performance and Wage Distribution: A Computable General Equilibrium (CGE) Analysis of Three European Union Regions

Pouliakas K., Roberts D., Balamou E. and Psaltopoulos D. Modelling the effects of immigration on regional economic performance and wage distribution: a computable general equilibrium (CGE) analysis of three European Union regions, Regional Studies. The paper uses a regional computable general equilibrium (CGE) model to analyse the effects of immigration on three small remote European Union regions located within Scotland (UK), Greece and Latvia. Two migration scenarios are assessed. In the first, total labour supply is affected. In the second, the importance of migratory flows by differential labour skill types is investigated. The results indicate significant differences in the extent to which regional economies are affected by immigration. They also suggest that remote regions are highly vulnerable to the out-migration of skilled workers (‘brain-drain’), while the in-migration of unskilled workers leads to widening wage inequality.