Computable General Equilibrium Model Research Articles

Examining the effectiveness of dissuasive taxes as a policy tool for reducing tobacco and alcohol consumption in Cameroon: A welfare and microsimulation analysis

Deterrent taxes are a crucial policy tool for reducing the consumption of harmful products like tobacco and alcohol. However, assessing dissuasive taxes impact different income groups is important to ensure that their burden is not disproportionately borne by low-income households. This study examines the effectiveness of deterrent taxes as an economic policy tool for reducing tobacco and alcohol consumption in Cameroon. We analyse the impact on household welfare and distributional effects using microsimulation analysis. The data come from the Cameroon Household Living Conditions Survey and the 2022 tax records. Our methodology is based on a dynamic computable general equilibrium (CGE) model enriched with an addiction model. The results indicate that deterrent taxes can significantly reduce the consumption of these harmful products but also have regressive effects on low-income households. In response, we recommend the adoption of a progressive tax structure and the establishment of targeted support programmes to mitigate the negative impact on vulnerable populations.

The economic effects of tax structure transformation: A study based on the tax reform of China's hainan free trade port

Many developing countries use tax reform as a strategy to support national or regional development. China's tax reform of the Hainan Free Trade Port in 2025 serves this purpose. The reform replaces the existing VAT, consumption tax, vehicle purchase tax, urban maintenance and construction tax, and education fee ("four taxes and one fee") with a sales tax. Previous studies of tax structure reform have rarely addressed the economic impact of such a transition, and few sales tax studies have discussed the issue of optimal tax rates. To study the economic effects of the introduction of sales tax and to find the optimal tax rate, this paper uses the computable general equilibrium (CGE) model to conduct simulation analyses. It is found that the sales tax rate should be 17.16 % to keep the fiscal revenue of Hainan Province more or less unchanged after the ‘four taxes and one fee’ are simplified into sales tax. The total economic volume and sales tax rate show an inverted ‘U’ type relationship, the optimal sales tax rate is about 9.79 %, and the tax rate of GDP, investment, employment growth of 3.82 %, 0.35 %, 3.41 %, respectively, the manufacturing industry and other industries in most of the different degrees of growth. Therefore, we suggest that the average sales tax rate of Hainan Free Trade Port should be around 9.79 %.

Evaluating the robustness of the ARIO model for a local disaster: 2021 flooding in Germany

Abstract Given the interconnectedness of modern economies and the widespread adoption of just-in-time production methods, even minor disruptions caused by natural disasters can lead to substantial indirect economic impact. A substantial body of literature has explored this phenomenon, using input-output analysis, computable general equilibrium and agent-based models. However, these models (i) heavily rely on parameters and data that often lack empirical grounding or (ii) exhibit considerable uncertainty, making it challenging to assess their reliability. The ARIO model has been widely used in the literature and has provided theoretical foundation for several related models. Using the July 2021 floods in Germany as a case study, we assess the sensitivity of the results of this model by varying key parameters, as well as the multi-regional input-output tables (MRIOTs), which constitute its primary input data. To facilitate this analysis, we introduce a new, resource-efficient Python implementation of the ARIO model, enabling the execution of a large number of simulations. Our findings highlight the substantial impact of data source and parameter selection on model outcomes, especially so when post-disaster rebuilding is costly. To ensure the robustness of their results, future studies on indirect economic impacts should be careful about recovery dynamics, consider multiple scenarios and compare results using MRIOTs from various sources.

Impact of Carbon Tax on Renewable Energy Development and Environmental–Economic Synergies

Global warming caused by greenhouse gas emissions has become a worldwide environmental problem, posing a great threat to human survival. As the world’s largest emitter of carbon dioxide, China has pledged to reach peak carbon emissions by no later than 2030 and carbon neutrality by 2060. It is found that a carbon tax is a powerful incentive to reduce carbon emissions and promote an energy revolution, but it may have negative socio-economic impacts. Therefore, based on China’s 2020 input–output table, this paper systematically investigates the impacts of a carbon tax on China’s economy, carbon emissions, and energy by applying a computable general equilibrium model to determine the ideal equilibrium between socio-economic and environmental objectives. Based on energy use characteristics, we subdivided the energy sector into five major sectors: coal, oil, natural gas, thermal power generation, and clean power. The results show that when the carbon emission reduction target is less than 15%, that is, when the equilibrium carbon tax price is less than 54 yuan/ton, the implementation of a carbon tax policy can significantly reduce carbon emission and fossil fuel energy consumption, while only slightly reducing economic growth rate, and can achieve the double dividend of environment and economy. Moreover, because the reduction of coal consumption has the greatest impact on reducing carbon emissions, the ad valorem tax rate on coal after the carbon tax is imposed is the highest because coal has the highest carbon emission coefficient among fossil fuels. In addition, as an emerging clean energy source, hydrogen energy is the ideal energy storage medium for achieving clean power generation in power systems. If hydrogen energy can be vigorously developed, it is expected to greatly accelerate the deep decarbonization of power, industry, transportation, construction, and other fields.

Impacts on Regional Growth and “Resource Curse” of China’s Energy Consumption “Dual Control” Policy

Accurately evaluating the effectiveness of the energy consumption “dual control” policy can effectively solve serious the current environmental pollution and promote ecological civilization. However, researchers have rarely considered the impacts on the regional “resource curse” of the energy consumption “dual control” policy. A dynamic computable general equilibrium model (CGE) was built to evaluate the impacts on the regional “resource curse” of the energy intensity control and total energy control policy. The results showed the following. (1) The energy consumption “dual control” policy changes the supply-and-demand relationship of factors and reduces the crowding-out effect of humans and capital. (2) The energy consumption “dual control” policy has restrained GDP growth, and the total output and total investment have declined. However, the impact in regions without the “resource curse” is remarkable. (3) The energy consumption “dual control” policy has a significant inhibitory effect on major pollutants and carbon emissions. (4) The energy consumption “dual control” policy has played a positive role in breaking the regional “resource curse”. The areas with a high and low “resource curse” have become smaller, and the areas without the “resource curse” have increased significantly. The following suggestions are made: (1) increase the flexibility of the “dual control” policy of energy consumption, (2) establish an energy consumption budget management system, and (3) accelerate the establishment of a carbon footprint management system.

Economy-wide impact of targeting and repurposing fossil fuel subsidies in Malaysia

Fossil fuel subsidy reform is a critical strategy for fostering cleaner energy systems and promoting sustainable development. The Malaysian government has signalled commitments to implement a targeted fuel subsidy reform where vulnerable households would be unaffected by the direct impact of higher fuel prices even after the reform. But despite this commitment, little is known about the economy-wide impact of the reform. This study employs a dynamic Computable General Equilibrium (CGE) model to examine the economic, social, and environmental impact of a targeted fuel subsidy removal in Malaysia under a spontaneous and gradual implementation scenario. The research also explores the impact of direct cash transfers to households and reinvestment in key sectors of the economy in the aftermath of the reform. Results from the study show that subsidy removal brings positive gains to the Malaysian economy in the medium to long term. Sequencing the phaseout of subsidies, providing compensation to vulnerable households, and reinvesting in education, health, transportation, and food assistance helps to avoid short-term adverse effects on households and output. The study recommends the need for a gradual removal of fuel subsidies that is accompanied by cash transfers to vulnerable households and investment in key sectors of the economy.

Economic impacts of large dams on downstream brickmaking in developing countries

Large dams have positive and negative impacts, including disrupting brickmaking on the floodplains downstream due to flow regulation and sediment reduction, affecting the supply of essential construction material, notably in developing countries. In this study, we introduce an analytical framework to assess the economywide effects of large dams on downstream brickmaking, focusing on Traditional Fired Clay Brick (TFCB). The framework includes three steps: characterizing the impacts on river flow and sediment load using river system modeling and secondary data, understanding the role of TFCB production in the economy based on survey and economic data, and quantifying the economywide impacts of changes in TFCB production using dynamic computable general equilibrium modeling. We demonstrate the functionality of the approach by conducting a case study of the impacts of the Grand Ethiopian Renaissance Dam (GERD) on the Sudanese economy due to changes in TFCB production by comparing two scenarios: “with GERD” and “no GERD.” Results show that Sudan’s accumulated (2023–2050) discounted (at 0.5% annually) Gross Domestic Product (GDP) at factor cost would decline by US$ 6 billion (−0.38%) due to a reduction in TFCB production. Consumer flexibility regarding brick types and the ability of alternative brick sources to fill the demand gap are key determinants of the impacts.

Assessing investment priorities for inclusive agricultural transformation in Tanzania

AbstractMotivationPolicy‐makers dealing with conflicting development goals and constrained budgets must comprehend the relative cost effectiveness of agricultural and rural development initiatives.PurposeWe assess the impact of alternative interventions on development outcomes—economic growth, job creation, poverty reduction, and diet quality—to inform decision‐making and resource allocation in Tanzania's agriculture. We analyse trade‐offs among development objectives and explore budget reallocation to enhance the efficiency of public spending.Approach and methodsWe used a computable general equilibrium (CGE) model linked top‐down with microsimulation modules to simulate the impact of public investment options.FindingsNo single option emerges as the most effective across all development objectives. Investments in improved inputs and extension for horticulture and cash crops stand out for diet quality and employment creation. Livestock services show consistently high rankings across multiple objectives. Investments to boost cereals and root crops promote growth and reduce poverty but do little to increase employment and diet quality.Budget reallocation towards more cost‐effective interventions can significantly enhance the development effectiveness of Tanzania's agricultural expenditures and would substantially increase cumulative gross domestic product growth between 2019 and 2028.Policy implicationsPolicy‐makers can use the findings to design and prioritize agricultural interventions that better align with broader development objectives. Tanzania can achieve higher benefits and contribute to overall development goals by reallocating resources towards more cost‐effective expenditure options.

Governance and policy implications of the Inflation Reduction Act: A European perspective

AbstractThis paper examines the US 2022 Inflation Reduction Act (IRA) alongside the EU's Net‐Zero Industry Act (NZIA) and Critical Raw Materials Act (CRMA) of 2023. We analyze their differential approaches to accelerating investment in clean technology, enhancing energy security and fortifying supply chains. Both regions share the objective of diminishing reliance on Chinese dominance in clean industries. The US seeks to stimulate private investment primarily via uncapped tax credits from 2022 to 2031, some of them subject to stringent domestic content requirements. The EU has reacted to the potential violation of World Trade Organization's rules and a possible green investment shift to the US In doing so, the EU is relying heavily on a regulatory strategy, with emphasis on the simplification of procedures. However, the EU's public funding model is vague and leaves details to the discretion of member states, risking fragmentation within the single market. Through the application of a dynamic computable general equilibrium model, we show that a 50% increase in demand for the IRA's uncapped tax credits could nearly triple US GDP outcomes by 2027. We highlight the contrast between the IRA's immediate fiscal incentives and the NZIA's regulatory approach, emphasising that the former are more attractive for firms.

Estimating carbon leakage from aviation by combining sectoral and general equilibrium models

This article describes a procedure for estimating carbon leakage from policies targeting aviation based on alternative scenarios. The key innovation to ensure greater robustness is that all scenarios are simulated by two different types of models: a sectoral model for aviation and a computable general equilibrium model.•The implementation of scenario simulation in both models is explained•The calculation of carbon leakage is explained step by step

Possible development path for agricultural economic and trade cooperation in FTAAP: A numerical simulation

Exploring the path of developing agricultural economy and trade cooperation in the Free Trade Area of the Asia Pacific (FTAAP) is of great practical significance for deepening economic integration in the Asia Pacific region and strengthening regional agricultural development. This paper proposes three feasible paths based on RCEP, CPTPP, and the integration of RCEP and CPTPP to establish FTAAP. Moreover, a dynamic computable general equilibrium model of global trade is used to simulate the macroeconomic effects and the agricultural effects represented by China in forming FTAAP under these three paths. The research results show that six common policy nodes will promote macroeconomic growth in participating countries, and the effects of the in-depth implementation of RCEP and CPTPP will be greater than those of the initial implementation. Due to the broader base of participating economies and the higher level of openness, establishing FTAAP under Path 3 will yield greater macroeconomic effects and agricultural effects. Therefore, the path based on the integration of RCEP and CPTPP is an optimal selection for economic and trade cooperation of agriculture in FTAAP. All parties should actively overcome the obstacles to forming FTAAP and provide a stable internal and external industrial development environment for regional agricultural economic and trade cooperation.

Incorporating Model Uncertainty into Policy Analysis Frameworks: A Bayesian Averaging Approach Combining Computable General Equilibrium (CGE) Model with Metamodelling Techniques

Future sustainable economic development depends heavily on public policy at regional, national, and global levels. Therefore, it is essential to conduct a thorough policy analysis that ensures consistent and effective policy guidance. However, a major challenge in traditional policy analysis is the uncertainty inherent in the models used. Both policymakers and analysts face fundamental uncertainty regarding which model accurately represents the natural, economic, or social phenomena being analyzed. In this paper, we present a comprehensive framework that explicitly incorporates model uncertainty into the policy decision-making process. Addressing this uncertainty typically requires significant computational resources. We utilize metamodeling techniques to reduce computational demands. We illustrate the impact of various metamodel types by applying a simplified model to the CAADP policy in Nigeria. Our findings highlight that neglecting model uncertainty can lead to inefficient policy decisions and substantial waste of public funds.Copyright© 2024 The Author(s). This article is distributed under the terms of the license CC-BY 4.0., which permits any further distribution in any medium, provided the original work is properly cited.

Cost, innovation, and emissions leakage from overlapping climate policy

Jurisdictions have implemented a variety of policy instruments to mitigate greenhouse gas emissions. However, interactions between overlapping climate policies can lead to unintended impacts. This study demonstrates how interactions between an incomplete emissions cap and additional climate policy can result in higher emissions and higher average abatement costs relative to an emissions cap alone. This sectoral policy emissions displacement effect is then quantified through simulations using a computable general equilibrium model for the case of California's low-carbon fuel standard (LCFS) and cap-and-trade program. Emissions increase as a result of the LCFS incentivizing greater production of alternative transportation fuels with emissions not covered by the emissions cap. Emissions leakage can be mitigated by incorporating elements of a fixed-price instrument (i.e. carbon tax) to improve policy complementarity or requiring an obligation for the lifecycle GHG emissions of fuels under the emissions cap.

Agrobiodiversity Conservation Policies: Insights from an Integrated Micro-macro Economic Model in Ethiopia

AbstractNational strategies aiming to enhance agricultural productivity in sub-Saharan Africa have traditionally focused on encouraging the adoption of improved modern crop varieties. This approach led to genetic erosion and reduced option value for bioprospecting, an unintended consequence of the decline of locally conserved traditional varieties. Governments are often left with poor guidance to evaluate the costs and benefits of this strategy. In this paper, we propose a methodological framework for assessing agricultural policies based on local agrobiodiversity conservation. In particular, we modify a computable general equilibrium model with trade to account for the land allocated to traditional and improved modern varieties as input for the agricultural sector. As a case study we select the Ethiopian durum wheat. Several sources of data at macro, micro and agronomic levels are adopted to estimate parameters and economic effects. Accounting for climate change and technological projections up to 2050, results of a counterfactual scenario show that when policy-driven breeding programs in specific agroecological niches are implemented, they simultaneously achieves conservation and food production goals. The findings underscore the need for policy interventions aimed at promoting context-specific strategies that consider conservation and production objectives within the broader agricultural landscape.

Economy-wide impact of a reduction in tobacco use in India

BackgroundPublic policy measures aimed at regulating tobacco use should consider the net gains for the nation, as the tobacco sector contributes to employment and tax revenue while also imposing substantial...

Contribution of road transport infrastructure in mitigating the inward–immiserizing growth in Cameroon: An externality approach in computable general equilibrium analysis

The issue of immiserizing growth has been largely discussed in the literature since 1958. It describes a country context contending with high volume of exports relatively to its imports on the international market that benefits from high economic growth but losses in households’ welfare. This study aims to investigate the contribution of transport infrastructure to tackle immiserizing growth in developing countries, focusing on the Cameroon economy, a contending with a significant lack in the development of road transport infrastructure. Further, the study enriches the debate on the wider economic impacts, closely related to immiserizing growth. The loss of welfare is observed upstream to the investigations, as a response to the application of two types of fiscal policies: the import tariff and the capital income tax. Through a dynamic Computable General Equilibrium (CGE) model, the effect of road transport infrastructure is explored, using the externalities approach. This is an innovative methodology recently applied to access the economic impacts of infrastructure investment making a difference between productive and non-productive infrastructure investments. The findings reveal that productive transport infrastructure not only reduces the wider economic impact by improving households’ welfare but also enhances economic growth. A 10 percent increase in road transport infrastructure investment funded by import tariff leads to a welfare improvement of 1.94% and 1.66% in both short and long terms compared to respective losses of 0.58% and 0.15% if the generated financial funds are allocated in non-productive infrastructure such as monuments, defense etc. The similar tendency is observed for the capital income tax funding. Thus, policymakers are recommended to accentuate the road construction, in order to shorten the complex interplay between public decisions and households’ living conditions.

Assessing carbon capture and storage technology in industrial joint venture

Carbon Capture and Storage (CCS) technology can effectively reduce carbon dioxide emissions from industrial and energy production processes. Yet the commercialization of CCS technology is hampered by financial requirements. Existing research compares the costs and benefits of business models for individual CCS projects, no studies assess the industry and national levels. Here we use a dynamic computable general equilibrium model, constructure the vertical integration and joint venture business models for CCS. This study assesses the emission and economic impacts of joint ventures between China's high-emission industries and their upstream and downstream sectors. We find that adopting the joint venture model in the coal power sector, compared to the vertical integration model, initially exerts a negative economic impact but can mitigate 0.04 % of GDP by 2060. The chemical industry consistently benefits from the joint venture model both economically and in emission reductions. Downstream sectors of the steel and cement industries are unsuitable for participation in joint ventures. In addition, the joint venture model has significant industry linkage effects, affecting energy consumption, the scale and cost of CCS deployment. This work provides important information for the large-scale commercialization of CCS technology.

Toward integrated dam assessment: evaluating multi-dimensional impacts of the Grand Ethiopian Renaissance Dam on Sudan

Abstract The Grand Ethiopian Renaissance Dam (GERD) on the Nile is expected to influence many ecosystem services, such as flood regulation, hydro-electricity production, food supply, and habitat provision, among others. Understanding these impacts (positive and negative) requires a comprehensive evaluation framework. This study develops and applies an integrated simulation framework for assessing the impacts of the GERD on Sudan, focusing on the simultaneous economywide effects of riverine flood hazards, irrigation water supply, hydropower generation, and floodplain-dependent industries, namely traditional fired clay brick production. The simulation framework incorporates three models: a river infrastructure system model, a flood model, and a Computable General Equilibrium Model. Results indicate positive impacts for hydropower generation and flood control, marginal benefits for water supply to existing irrigation, and negative consequences for brick production and the construction sector. Assuming that the GERD starts its long-term operation in 2025, we find an overall positive economic impact on Sudan’s Gross Domestic Product in 2025, with an increase of up to just over 0.1%, subject to river flow conditions. Recognizing the differences in impacts across sectors and income groups, the study emphasizes the need for interventions that ameliorate negative effects. While the study captures several impacts, other effects on the environment, recession agriculture, and soil fertility require further investigation. Still, our findings underscore the importance of adopting an integrated simulation approach to dam evaluation, acknowledging the interconnected nature of water and related sectors in national economies.

Transition finance facilitates lower-cost achievement of climate targets: A case study of China

Low-carbon transition in carbon-intensive industries is crucial for achieving climate targets. However, it's challenging for enterprises and projects in these industries to access the necessary funding for their transition within the existing financial system. In this context, transition finance supports the low-carbon transition of carbon-intensive industries, injecting momentum into achieving carbon neutrality goals. However, the precise impact of transition finance on the macroeconomy remains uncertain, and the effective strategies for its implementation to effectively advance national climate objectives are still unclear. This study integrates the stock-flow consistent method into a computable general equilibrium model to evaluate the macroeconomic impact of transition finance supporting China's climate goals. Results indicate that promoting investment in energy systems capital within carbon-intensive industries through transition finance can reduce the economic cost of achieving carbon reduction targets in China, with a reduction ranging from 0.02 % to 0.26 %. Additionally, transition finance optimizes the energy structure in the short term, mitigates the exit of high-carbon industries, and lessens the impact of climate targets on these enterprises. However, implementing transitional financing requires enhanced information disclosure and strict regulation of fund flows to mitigate potential credit risks. The research findings provide valuable insights into China's transition finance policy formulation and serve as a reference for other regions seeking financial support to achieve climate targets.

Regional aggregation bias in the global computable general equilibrium model: Issues in assessing the economic impact of climate change and trade liberalization

This study examined the bias introduced by regional aggregation (RA) when assessing the effect of climate change and trade liberalization through computational experiments. The analysis used global computable general equilibrium models with different pre-aggregation levels, based on the GTAP10 database. The bias was quantified by comparing the effects between large-scale and aggregated models. The results revealed that RA bias comprised over 35% of estimated effects related to climate change and global trade liberalization; it reversed the change direction in the simulation and deviated changes beyond the variation range observed in the sensitivity analysis; and it increased in developing countries where the proportions of imports were high. Much RA bias is artificially created by aggregating countries with different initial shocks, which then spreads to other countries through a pseudo-trade structure. Therefore, adopting a disaggregated global model is crucial to improve the accuracy of climate change assessments with diverse shocks worldwide.