Computable General Equilibrium Approach Research Articles

Low-carbon scenarios for the power generation sector in Korea

According to the Paris Agreement, the global community agreed that the concentration of greenhouse gases in the atmosphere would be stabilized by the end of this century within the temperature increase of 2 °C. Many countries are phasing-out coal-fired power plants domestically and internationally in order to mitigate CO2 emissions. In this paper, CO2 emission projections for the power sector in Korea under different scenarios through 2029 are examined. Since the power generation sector in Korea is one of the main sources of CO2 emissions, low-carbon options in this sector with their implications for changing the energy mix and incremental costs are compared with the official basic plan in this sector. To project the power generations and the associated CO2 emissions under different scenarios, the Asia Integrated Model of the computable general equilibrium approach for Korea is used. The simulation results tell us that the CO2 emission reduction for the power sector in Korea is feasible with the incremental costs of power generation between −25.7 and 452.4 USD per ton of CO2 in 2029, depending on the energy mix under different scenarios. The policy implication is clear that the low-carbon pathways for the power sector are feasible with the social consensus that the extra burden of CO2 reduction cost will be considered.

Migration in Europe and Its Economic Impact: A CGE Approach

The objective of this paper is to examine whether the migration of refugees in Europe will be able to contribute to the economic development of both the countries of origin and destination. This is done by conducting a quantitative assessment of the potential economic impact of the migration of refugees in Europe at the macroeconomic and microeconomic levels using a global computable general equilibrium (CGE) model that takes into account bilateral migration blows. The simulation results of policy scenarios on migration of refugees in Europe are presented in terms of real GDP, equivalent variation (EV) as a measure of welfare, supply of and demand for unskilled and skilled labor, wages for unskilled and skilled labor, and domestic production by sector of the countries concerned. Major findings of this study are that the EU member states that accept migrants are predicted to gain an additional increase in real GDP and welfare, while the countries of source such as Middle East countries, North African countries and Sub-Saharan African countries are expected to lose in economic growth and welfare, because they lose the labor force and produce less goods and services.

Comparision of China’s volatile organic compound pollution management: a computable general equilibrium approach

ABSTRACTThe public health and ecological impacts of volatile organic compound (VOCs) pollution have become a serious problem in China, arousing increasing attention to emissions control. In this context, this paper analyses the effectiveness of VOC reduction policies, namely pollution charges and environmental taxes at the national and industrial sector levels. It uses a computable general equilibrium model, which connects macroeconomic variables with VOC emissions inventory, to simulate the effects of policy scenarios (with 2007 as the reference year). This paper shows that VOC emissions are reduced by 2.2% when a pollution charge equal to the average cost of engineering reduction methods – the traditional approach to regulation in China – is applied. In order to achieve a similar reduction, an 8.9% indirect tax would have to be imposed. It concludes that an environmental tax should be the preferred method of VOC regulation due to its smaller footprint on the macroeconomy. Other policies, such as subsidi...

The impacts of temporary but anticipated tourism spending: An application to the Glasgow 2014 Commonwealth Games

An extensive literature attempts to identify the economic impact of tourism expenditure. While Input-Output methods have been widely applied these may not always be appropriate for such applications and there is a growing use of more flexible Computable General Equilibrium (CGE) approaches. This paper uses a multi-period Scottish CGE model to estimate the system-wide effects of the temporary tourism expenditure related to the Glasgow 2014 Commonwealth Games. We quantify the sensitivity of our results to model specification, focusing in particular on how investment and consumption decisions are made and shifted over time to accommodate the temporary tourism shock. As part of this analysis we identify the pre-announcement period that optimises the present value of the economic impact. Whilst the empirical results apply to a specific event, our results have implications for similar analyses applied to mega events and other temporary phenomena affecting tourism expenditure, such as terrorism attacks or epidemics.

Evaluation of a Decade of Korea's FTA Policy

We analyze Korea’s FTA policy based on the outcomes of recent bilateral FTAs, in terms of achieving policy objectives. While many previous studies mainly focused on trade impacts under bilateral FTAs, this study analyzes the overall economic impact of FTAs in terms of growth and welfare, as changes in bilateral trade may affect global trade and the general economy in a variety of ways. In order to analyze the overall effect of FTAs, we adopt the Computable General Equilibrium (CGE) approach. With a CGE model, the macro economic impacts of FTAs can be calculated taking into account the complicated interactions among economic agents and industries. The growth effect in the EU shows the high-est results, followed by 0.9% growth and an additional 0.43% and 0.11%, in the ASEAN and Chile respectively. In addition, by com-paring the overall growth effect of FTA on total economic growth in 2013, the growth impact of FTAs accounted for 1.19% among 3% of total economic growth in Korea. This implies that Korea, as one of the most open economies in the world, could sustain positive growth rates due to FTAs such as the Korea-ASEAN FTA, despite the trade collapse during the global financial crisis.

The macroeconomic cost of catastrophic pollinator declines

We develop a computable general equilibrium (CGE) approach to assess the macroeconomic impacts of productivity shocks due to catastrophic losses of pollination ecosystem services at global and regional scales. In most regions, producers of pollinator dependent crops end up benefiting because direct output losses are outweighed by increased prices, while non-agricultural sectors experience large adverse indirect impacts, resulting in overall losses whose magnitudes vary substantially. By comparison, partial equilibrium analyses tend to overstate the costs to agricultural producers, understate aggregate economy-wide losses, and overstate the impacts on consumers' welfare. Our results suggest an upper bound on global willingness to pay for agricultural pollination services of $127–$152 billion.

The Impact of Production Tax on Agriculture Sector in Vietnam: A Computable General Equilibrium Approach

The Impact of Production Tax on Agriculture Sector in Vietnam: A Computable General Equilibrium Approach

Cambodia Macroeconomic Impacts of Public Consumption on Education a Computable General Equilibrium Approach

Employing the available social accounting matrix, this paper examines the impacts of different public education consumption schemes on Cambodian macroeconomics, the labour market and household welfare. The results from the simulation scenarios in the CGE model revealed that the reallocation of public spending from primary and secondary education to higher education produced a negative impact on the wage rate of low and fairly educated labour, dropped outputs, and reduced household welfare, which had adverse effects on macroeconomic variables in general. However, the shift of public spending from administration to the three education sectors, showed positive impacts on the economy, household income and welfare. Given the factor endowment structure of the Cambodian education sector, the policy that focuses on higher education by providing more spending to this sector did not yield results as good as keeping the initial education spending structure.

Economic and environmental influences of coal resource tax in China: A dynamic computable general equilibrium approach

Coal resource tax reform from quantity-based collection to ad valorem collection has been implemented by the Chinese government in December 2014, to develop a low-carbon economy. This paper builds a multi-sectoral dynamic computable general equilibrium (CGE) model with a coal resource tax module, to study the general impacts of such reform policy on the Chinese economy and environment. Based on the proposed model, different policy designs with different ad valorem tax rates are simulated and further compared with the current quantity-based policy, and some interesting results can be obtained. As for the economic influence, the gross domestic product (GDP) of China would be somewhat negatively affected by the reform in terms of output shrinkage in most sectors, and the effect will be larger with a higher tax rate but decrease as time goes. From the environmental perspective, the energy structure would be improved by the reform policy, with a sharp decrease in coal consumption but increases in the consumptions of cleaner energy forms. Accordingly, the total carbon emissions and other main air pollutants (SO2 and NOx) would be significantly mitigated, which can effectively improve the environment and guarantee the achievement of China's promise in carbon emissions reduction.

Economic and Spatial Effects of Land Value Taxation in an Urban Area: An Urban Computable General Equilibrium Approach

This paper studies the effects of switching from a capital property tax to a land value tax, using an urban computable general equilibrium model calibrated to the features of the Atlanta, Georgia, area. Our model differs from prior simulation studies in that we assume that residents own a fixed amount of land rather than assuming an absentee landowner, we consider three income groups rather than just one, we consider cases in which housing capital is not completely mobile, and we allow for a labor-leisure choice. <i>(JEL H21, H71)</i>

Comparing approaches to economic impact analysis of property redevelopment

Purpose – The purpose of this paper is to demonstrate the value of computable general equilibrium (CGE) modeling for impact analysis of real estate developments and redevelopments. Design/methodology/approach – Uses a model constructed for Colorado to compare estimates of economic impact of a hypothetical mixed-use development from a CGE model with an input-output (IO) model similar to those commonly used in applied economic impact analysis. Findings – Economic impact estimates of construction activity are demonstrated to be lower when using a CGE approach as compared to an IO approach while impact estimates of continuing operations of a property are demonstrated to be more accurate and potentially higher using a CGE approach. Practical implications – A CGE approach as opposed to an IO approach will be particularly useful for practitioners in particular cases where IO models are ill suited to provide meaningful estimates concerning impact of continuing operations. This is especially likely where commercial tenants are unknown or when the development includes a residential component. Social implications – More complete and accurate assessments of economic impact may positively affect views on property development and redevelopment by the public and government. Originality/value – This paper adds to the existing literature concerning economic impact analysis of real estate and is the first paper in the field, to the authors’ knowledge; to compare estimates from the standard IO approach to those derived using more sophisticated modeling techniques.

Multilevel Assessment of Public Transportation Infrastructure: A Spatial Econometric Computable General Equilibrium Approach

Impact assessment of transportation investment policy is a challenging task as assessment outcome is sensitive to various attributes such as methodology, time period, scale and location of analysis. This study is conducted to evaluate regional impact of public transportation infrastructure in the US at multilevel geographic scales. The assessment is implemented using a spatial econometric computable general equilibrium (SECGE) approach which integrates spatial econometric techniques with computable general equilibrium models to control for spatial spillover effects. The results suggest that regional economic impacts of public transportation infrastructure vary substantially by mode as well as the scale and location of analysis. The different impact outcomes found in this study can be explained by a different investment strategy of public transportation at different geographic scales.

Multilevel assessment of public transportation infrastructure: a spatial econometric computable general equilibrium approach

Multilevel assessment of public transportation infrastructure: a spatial econometric computable general equilibrium approach

Optimal Fuel Taxes and Heterogeneity of Cities

In the United States all levels of jurisdictions are allowed to levy supplements to the federal fuel tax level. While fuel tax differentials at the state level are substantial, there is a relatively small differentiation across cities. This seems surprising given the heterogeneity of U.S. metropolitan areas. Against this background, the objective of the present paper is to analyze whether the current small level of tax differentiation across heterogeneous metropolitan areas is justified on efficiency grounds. We employ a spatial urban computable general equilibrium approach and calculate optimal gasoline taxes for an average U.S. prototype urban area characterized by a medium degree with respect to the spatial distribution of jobs (implying a medium spatial expansion of the urban area, medium degree of externalities, medium public transit share etc.) and for cities that differ with respect to these and further characteristics. We find that in our prototype urban economy the optimal gasoline tax is higher than current rates as suggested by previous studies calculating nationwide optimal gasoline taxes. Furthermore, it is shown that optimal tax levels may vary considerably across heterogeneous cities, much more than actual tax rates. This implies that stronger spatial fuel tax differentiation across cities could raise social welfare. However, we also show that setting an optimal spatially uniform tax, i.e. a uniform tax that maximizes the sum of the benefits generated in all cities, is capable to generate a significant fraction of the maximum achievable welfare gain under optimal city specific locally differentiated gasoline taxes. Interestingly, such an optimal uniform tax could deviate from all city specific optimal fuel tax levels. This suggests that the additional benefit from spatial fuel tax differentiation might actually be relatively small, in our case the efficiency premium is less than one-thirds.

Economic and Environmental Effects of Coal Resource Tax Reform in China: Based on a Dynamic CGE Approach

Abstract Coal resource tax reform from quantity-based collection to ad valorem collection has been raised recently by the Chinese government, to develop a low-carbon economy. This paper builds a multi-sectoral dynamic computable general equilibrium (CGE) model to study the general impacts of such reform policy on the Chinese economy and environment. Based on the proposed model, different policy designs with different ad valorem tax rates are simulated and further compared with the current quantity-based policy, and some results can be obtained. As for the economic influence, the gross domestic product (GDP) of China would be somewhat negatively affected by the reform. From the environmental perspective, total carbon emissions would be significantly mitigated, which can effectively improve the Chinese environment.

Spatial and Temporal Variabilities of Land Uses as Affected by Global Change: A Focus on Mediterranean Agriculture

At the global level, climate and socio-economic changes determine the patterns of the allocation and trade of resources in all markets. Top-Down computable general equilibrium (CGE) models, using only economics factors of production (capital and labour mostly) and ignoring natural resources constraints, look at the effects of global trends and generate trajectories of socio-economic indicators, such as prices of commodities in the global markets, volumes of trades, gross products per country and sectors. Those models are commonly used to analyse the evolution of global economies, under the pressure of climate change drivers, but their approach impose substantial simplifications in terms of spatial aggregation and interactions between socio-economic and environmental variables. A common critique concerns their limits in exploring the emergent properties of the evolving – non-linear – systems.When considering adaptation of social and ecological systems to climate change, their inherent complexity and non-linearity and their spatial and temporal variabilities put the usefulness of consolidated CGE approaches under question for long term projections. As a consequence, other methodological approaches are explored, and in particular more and more scholars explore Bottom-Up approaches, utilising mechanistic knowledge of physical/environmental phenomena and considering of behavioural diversity of economic agents, as a consequence of their diverse interactions with the surrounding environment and their bounded perceptions of the changing world. This work explores the potential for integration of the T-D and B-U approaches, with CGE models providing the macro-economic trends under the effects of global change scenarios and agent-based models (ABM) used to simulate grid-based land use change dynamics, with consideration of spatial (i.e. territorial) and temporal (i.e. climatic extremes and economic shocks) variabilities. We focus on how global change may affect land-use allocation at the local to regional level, under the influence of limited natural resources, land and water in particular. We specifically explore how constrains and competition for natural resources may induce non-linearities and discontinuities in agro-ecosystems behaviour.With the purpose to develop an approach that could be implemented worldwide as a means for zooming down from the global to the regional and local scale, an ABM prototype was developed and run with readily available global databases in three test areas around the Mediterranean Basin, in agricultural regions of Tunisia, Italy and Spain. Starting with extremely simplified and averaged settings; we sequentially introduce the available information about spatial and temporal variability and simulate the dynamics of water and land-use allocations and their consequences on economic performances. The coherency of the outcomes of ABM simulations with the macro trends provided by the CGE model is discussed in view of possible further developments in terms of improved integrated multi-scale simulation of global change scenarios and economic development.

Should agriculture be exempt from trade policy reforms in South Asia?

Contracting parties to the Agreement on South Asian Free Trade Area (SAFTA) are committed to trade liberalization within a fixed time frame. Most contracting parties have kept agriculture out of their tariff liberalization commitments. A key question therefore is: should agriculture receive dispensation given the sector’s important contribution to South Asia’s economic structure? An enhanced multi-household framework within a multi-country computable general equilibrium (CGE) approach was used to assess the impacts on trade flows, government fiscal revenues and income distribution among households in countries that are contracting parties to SAFTA, assuming full trade liberalization and trade liberalization with the protection of the agricultural sector. The results indicate that, although both policies would facilitate economic growth and lead to a reduction in income disparity among household groups in all South Asian countries, the overall welfare gains would be greater under full trade liberalization. Hence, the removal of agricultural sector tariffs should be an important consideration in future SAFTA discussions; such a step would be a principal means for strengthening intraregional trade.

The economic impact of carbon pricing with regulated electricity prices in China—An application of a computable general equilibrium approach

We use a dynamic CGE model (SICGE) to assess the economic and climate impacts of emissions trading system (ETS) in China with a carbon price of 100 Yuan/ton CO2. A particular focus is given to the regulated electricity price regime, which is a major concern of electricity sector’s cost-effective participation in ETS in China. We found: (1) Carbon pricing is an effective policy for China to reduce CO2 emissions. Total CO2 emissions reduction ranges from 6.8% to 11.2% in short-term. (2) Rigid electricity price entails lower CO2 emissions reduction but can be considered as a feasible starting point to introduce carbon pricing policies in short-term as long as governmental subsidies are given to electricity production. (3) In mid- and long-term, the efficient policy is to earmark carbon revenue with competitive electricity price. We propose to use carbon revenue to reduce consumption tax in the first year of the introduction of carbon price and to use the carbon revenue to reduce production tax in following years.

The economic influence of photovoltaic technology on electricity generation: A CGE (computable general equilibrium) approach for the Andalusian case

This paper provides an estimation of the socio-economic impacts of increasing the production capacity of installed solar parks in Andalusia (southern Spain). Solar parks use photovoltaic technology for electricity generation. A CGE (computable general equilibrium) approach is used to capture impact assessments of an increased roll out of solar parks in Andalusia on production activities, employment and other macroeconomic variables as a consequence of increasing power output by this means to 400 MW by 2013 as stipulated in the program named as ‘PASENER (Plan Andaluz de Sostenibilidad Energética) 2007–2013’ implemented by the Andalusian Regional Government.Results show that compliance with the PASENER goal would increase the activity level of the economic sectors considered by 3.1 %, and total employment generated would reach 215,148 equivalent fulltime jobs lasting one year. The other macroeconomic variables considered would also increase.The deployment of the photovoltaic technology would provide up to 527,573 tonnes of CO2 abatement if it displaces an equivalent installed capacity of thermal plants.

Capturing the macroeconomic impact of technology-based greenhouse gas mitigation in agriculture: a computable general equilibrium approach

The importance of greenhouse gas (GHG) emissions related to agriculture is gaining momentum in the climate change policy debate, as evidenced by the European Effort Sharing Decision. Food production is important to economic sustainability in many regions and therefore GHG mitigation in agriculture will have notable macroeconomic implications. A theoretically consistent and tractable framework capturing the link between GHG abatement in primary food production and the wider economy is essential to GHG mitigation strategy development in such regions. Computable general equilibrium (CGE) models provide a straightforward approach to compare the economic and environmental impacts of price/quantity-type policy instruments to meet emission abatement obligations. However, capturing changes to emission intensity associated with agriculture is not nearly as developed in the CGE literature, which has focused on the energy sector. This paper considers alternative approaches to modelling abatement technology in a CGE framework, and illustrates an approach that utilizes standard models available to explore strategic implications of local–regional abatement options. The case study considered is Northern Ireland, a small regional economy with a relatively large proportion of economic activity related to the food supply chain.