General Equilibrium Approach Research Articles

Disasters and capital accumulation: the case of Southeast Asia

ABSTRACT Countries in Southeast Asia are highly exposed to disasters and the exposure is increasing in recent years. Capital accumulation is one of the important factors as a buffer to shocks of disasters. We examine the impact of disasters on capital accumulation in selected Southeast Asian countries, using a dynamic stochastic general equilibrium (DSGE) approach. The result shows that frequent disasters lower the long-term capital stock. This paper also discusses policy measures of promoting capital accumulation and compare two policy options: i) providing subsidies to incentivize further investment; and ii) encouraging competition and concludes that a competitive environment will be critical to strengthen capital accumulation against disasters.

The Efficiency Aspect of Taxation in Pakistan: A Computable General Equilibrium Approach

The Efficiency Aspect of Taxation in Pakistan: A Computable General Equilibrium Approach

Evaluating the impact of a 24-hour economy on Ghana's economic landscape: A computable general equilibrium approach

The National Democratic Congress (NDC), Ghana's leading opposition political party, has unveiled an ambitious ‘24-hour economy’ policy proposal ahead of the country's forthcoming general elections in 2024. The policy aims to revitalise the nation's economic landscape by fostering round-the-clock operations in key sectors. This paper employs a dynamic Computable General Equilibrium (CGE) model framework, underpinned by the 2015 Ghana Social Accounting Matrix (SAM) and the 2021 Ghana Population and Housing Census (PHC) data, to evaluate the potential impact of the policy on Ghana's economy.Results indicate that under the proposed ‘24-hour economy’ policy, Ghana's real GDP growth (not to be confused with GDP growth rate) in ten years would be 31.71 % higher than it would have been under a ‘business-as-usual’ scenario in the same timeframe. This indicates substantial augmentations in economic output within the Ghanaian economy under a ‘24-hour economy’ setting. Further, the policy would generate more than 3 million jobs within five years of its implementation, with manufacturing, agriculture, wholesale and retail trade, services, construction and transport sectors experiencing substantial employment gains.The policy's transformative effects are driven by its ability to stimulate capital investment and capital formation, boost productivity and increase household incomes.The paper concludes that the NDC's proposed ‘24-hour economy’ policy holds substantial potential for transformative economic growth in Ghana. However, there are potential challenges associated with the implementation of the policy, which then necessitates a holistic approach to policy formulation, focusing on inclusive growth and sustainable development strategies.

The Effect of a Carbon Tax on the Economy, Welfare and Emissions in Morocco: A Computable General Equilibrium Approach

The Effect of a Carbon Tax on the Economy, Welfare and Emissions in Morocco: A Computable General Equilibrium Approach

On the impacts of higher tobacco taxes in Argentina: a computable general equilibrium approach

ObjectivesWe analyse the employment effects of increasing tobacco taxation in Argentina by building a computable general equilibrium (CGE) model.MethodsIn line with recent changes in tobacco taxation in the country, the...

COVID-19 Pandemic and its Economic Impact on the Global Economy: A Computable General Equilibrium Approach

Introduction: The COVID-19 pandemic, caused by the novel coronavirus SARS-CoV- 2, has been a global health crisis since its emergence in late 2019, impacting all aspects of life worldwide. It has revealed vulnerabilities in healthcare systems while also inspiring scientific advancements and cooperation in developing vaccines, highlighting the importance of preparedness and equitable healthcare for future challenges. Method: This paper evaluates the economic impact of the COVID-19 pandemic on the global economy. The study employed the Global Trade Analysis Project model using GTAP database version 10A with 2014 as the base year. The database's 141 regions and 65 sectors are aggregated into 20 regions and 29 sectors. The model used involves a baseline and two policy scenarios. The baseline scenario projected the global economy to 2020 from 2014 using macroeconomic variables, such as real GDP, population, capital stock, and labor supply. Policy scenarios 1 and 2 accounted for the impact of the COVID-19 pandemic and fiscal stimulus package, respectively. Result: The impacts of the pandemic are measured in real GDP, welfare, export and import volumes, trade balance, and output by sector. Simulation results indicate that the real GDP for all regions declined. The impact of COVID-19 on the welfare of countries, including Korea, Japan, the US, Mexico, China, Italy, and Great Britain, varied. In all these countries, the pandemic highlighted existing inequalities and vulnerabilities, affecting countries disproportionately. Government interventions, such as stimulus packages, income support programs, and vaccination campaigns, have aimed to mitigate the impact and support the welfare of the population. The pandemic disrupted global supply chains and increased trade costs, thereby negatively impacting both import and export volumes. The output of some sectors, such as tourism-related sectors, was heavily affected. Conclusion: The COVID-19 pandemic has impacted real GDP, welfare, export and import volumes, trade balance, and output by sector. By examining the specific implications of the pandemic on each of these economic factors, policymakers and researchers can gain valuable insights into the challenges faced and potential avenues for recovery.

Optimal taxation of nonrenewable resources during clean energy transition: A general equilibrium approach

In this paper we study clean energy transition in a modified version of the Ramsey growth model by including nonrenewable and renewable resources as well as pollution externalities. The main difference from previous works is that we consider imperfect substitution between nonrenewable and renewable resources. We characterize the social optimum and show that the economy converges to a clean state in the long run. We then study the decentralized equilibrium and show that the economy converges to the same state even without regulation, but with higher environmental damage. Further, we investigate the properties of the taxation trajectory that drives the laissez-faire economy to follow the optimal path and show that it can be either increasing or decreasing over time. We identify different channels that influence the path of optimal taxation and show that it depends, among other things, on the level of capital, the cost of renewable energy and the degree of substitution between renewable and nonrenewable resources.

The Effect of Tax Shock on Savings Interest on the Total Portfolio: Financial Computable General Equilibrium (FCGE) Approach

The Effect of Tax Shock on Savings Interest on the Total Portfolio: Financial Computable General Equilibrium (FCGE) Approach

Green Fiscal and Tax Policies in China: An Environmental Dynamic Stochastic General Equilibrium Approach

Implementing green fiscal and tax policies for reducing emissions and pollution without negatively impacting economic growth remains a challenge. We aimed to determine whether environmental protection and economic growth can both be attained under a green fiscal and tax policy. Specifically, we created a dynamic stochastic general equilibrium (DSGE) model to explore the environmental, economic, and welfare impacts of green fiscal and tax policies. Additionally, a welfare analysis based on an environmental DSGE (E-DSGE) model was performed. We found that (1) raising the environmental or energy tax rate was beneficial for reducing emissions and environmental pollution. However, this approach inhibited economic growth, an outcome not conducive to improving welfare. (2) Increasing the subsidy rate for emission reduction not only incentivized businesses to reduce emissions but also improved economic growth and welfare. (3) The emission reduction mechanisms of environmental tax policies, energy tax policies, and subsidy policies are different. Among them, the environmental tax policy and the energy tax policy both reduce pollution by forcing businesses to increase their emission reduction efforts, but the former is a tax on pollution emissions, while the latter is a tax on energy consumption. However, emission reduction subsidy policies incentivize companies to increase their emission reduction efforts and reduce pollution emissions by alleviating their financial burden. (4) Increasing government spending on environmental remediation could promote economic growth. However, considering that this does not motivate companies to reduce emissions, increasing their share will lead to a reduction in emission reduction subsidies, ultimately negatively impacting social welfare. (5) An environmental tax would cause greater losses in welfare than an energy tax. These findings will enable policymakers to optimize expenditures and tax systems.

Integrated modeling for sustainable fisheries in Morocco: a dynamic computable general equilibrium approach

Integrated modeling for sustainable fisheries in Morocco: a dynamic computable general equilibrium approach

Investigating the Economic Impacts of Inter-Basin Water Transfer Projects with a Water- Embedded Multi - Regional Computable General Equilibrium Approach

Investigating the Economic Impacts of Inter-Basin Water Transfer Projects with a Water- Embedded Multi - Regional Computable General Equilibrium Approach

Peatland restoration in Germany: A dynamic general equilibrium analysis

Drained peatland currently contributes 7.5% of Germany's total national greenhouse gas emissions. The National Peatland Protection Strategy adopted by the German government in 2022 recognizes that these emissions need to be reduced significantly to meet the country's climate change mitigation commitments. The present study employs a global dynamic computable general equilibrium model to assess the economic and greenhouse gas emission impacts of alternative agriculture-focused peatland rewetting scenarios for Germany up to 2030. In contrast to partial-analytic approaches, the global general equilibrium approach allows to take consistent account of economic ripple-on effects and carbon leakage effects triggered by peatland rewetting. The results suggest that in the medium term towards 2030 a reduction in annual emissions from agricultural peatland use by up to 45% are attainable at marginal private abatement costs between 27 and 61 Euro/tCO2e. Carbon leakage effects due to induced indirect land use change in Germany and the rest of the European Union reduce the global net emission reduction impact by 0.7 to 1.0% of the direct emission reduction. The effects on food prices remain small in all scenarios. In conclusion, a sizable reduction of Germany's land-use-related emissions is achievable at a low macroeconomic cost by moving beyond the moderate ambitions of the National Peatland Restoration Strategy.

Analysis of The Impact of The Country's Tax Policies During The Outbreak of The Covid-19 On The Country's Employment Level: A Dynamic Stochastic General Equilibrium Approach

Analysis of The Impact of The Country's Tax Policies During The Outbreak of The Covid-19 On The Country's Employment Level: A Dynamic Stochastic General Equilibrium Approach

Assessing the compensation and reinvestment plans for fuel subsidy rationalization in Nigeria: A dynamic computable general equilibrium approach

Ending subsidies on fossil fuels is vital for tackling the climate crises and promoting a transition to cleaner energy systems. However, ensuring a successful subsidy reform requires a detailed understanding of its potential impacts and measures to ameliorate those impacts. This study employs a dynamic computable general equilibrium model to examine the impact of fuel subsidy rationalization in Nigeria and evaluate the proposed compensation and reinvestment plans of the government in minimizing welfare losses and reviving economic activities. We found that a complete, one-off removal of fuel subsidies results in severe economic headwinds and significant welfare losses. While the proposed compensation and reinvestment plans of the government brought positive welfare gains and undid many economic headwinds, it was not the optimal policy pathway in terms of resource allocation. Our result showed that a balanced allocation of resources between compensation and reinvestment that implements three-quarters of the total expenditure in 2024 and the remaining one-quarter in 2025 offered better outcomes. We recommend practical measures to implement the proposed plan to minimize fallouts and maximize economic, social, and environmental gains.

Human Capital, Migration and Remittance in Developing Countries: A General Equilibrium Approach

The paper develops a three-sector model with Harris–Todaro type unemployment to examine the consequences of an increase of migrants’ human capital on remittance within a small open dual economy. By using indirect utility functions, the paper endogenizes the remittance. The theoretical analysis shows that an increase of human capital level of rural migrants increases their income, urban consumption and remittance, while its effect on the proportion of remittance in migrants’ income depends on the impact of remittance on agricultural production.

Financial Literacy, Portfolio Choice, and Wealth Inequality: A General Equilibrium Approach

Financial Literacy, Portfolio Choice, and Wealth Inequality: A General Equilibrium Approach

Innovation and Welfare Impacts of Disclosure Regulation: A General Equilibrium Approach 

Innovation and Welfare Impacts of Disclosure Regulation: A General Equilibrium Approach 

James Tobin on Overlapping Generations Models and the Microeconomic Foundations of Macroeconomics Reconsidered

The American Keynesian economist and Nobel laureate James Tobin entitled his contribution to the inaugural issue of Journal of Money, Credit and Banking “A General Equilibrium Approach to Monetary Theory” (1969) yet he was sharply critical of the version of general equilibrium analysis used in the now-prevalent dynamic stochastic general equilibrium (DSGE) approach to macroeconomic modeling. He also rejected claims that overlapping generation (OLG) models provided a choice-theoretic foundation for the holding of fiat money, denying that the assumption that people held fiat money because no other asset existed was less arbitrary than allowing costs of transactions between assets to be non-zero. Yet, while not accepting OLG as the explanation of why people hold fiat money, Tobin, in a series of articles from 1967 to 1983 (some joint with Walter Dolde), placed the life-cycle model of consumption and saving (whose origins he attributed to an earlier Yale economist, Irving Fisher) into an OLG setting. This article examines Tobin’s critiques of DSGE and OLG modelling in macroeconomics, what he meant by “a general equilibrium approach to monetary theory,” and his contribution placing the life-cycle model in an OLG setting.

Revisiting the effect of financial crisis and banking reforms on the effectiveness of monetary policy transmission mechanism in Nigeria

Understanding the effect of the extent of financial intermediation on the performance of monetary policy transmission channels is crucial to the formulation of monetary policy. To this end, the paper tested the validity of the above statement in the Nigerian context using quarterly data between 2005Q1 and 2019Q4. The data was analysed using a dynamic stochastic general equilibrium approach. Results of the estimation showed that the financial crisis experienced in the country led to the depression of the Nigerian capital market and a decrease in the amount of credit provided by banks for trading in the capital market, exchange rate risk tightening of liquidity, and greater loan-loss provisioning. It was revealed that recent changes and reforms in the industry have positive impacts on all the monetary policy transmission channels (exchange rate, interest rate, expectation, and credit) considered in the study. However, the credit channel appeared to be the most active as it transmits the largest impact of shocks to the financial sector (88.06 per cent on average) to the real economy. This demonstrates that the private sector depended on the financial sector for ?nancing their expenditures, which later induced an increase in the level of investment and increased output.

Halving the European farm uses of pesticides: Looking for alternative technologies

Abstract With the Green Deal roadmap, the European Union aims to half the uses and risks of pesticides by the end of this decade. The European Commission (EC) claims that the proposal for pesticides will not disrupt European agri-food production and price. The EC argues that previous assessments of the roadmap provide an upper limit to the effects of the proposal, mostly by ignoring alternative production techniques that rely on integrated pest management principles. Our paper first explains that the general equilibrium approach applied by the United States Department of Agriculture (USDA) does correctly capture these alternatives, measured implicitly in econometric studies on the price inelasticity of pesticide use. Second, we show that the USDA study significantly underestimates the negative effects of the proposal in terms of agri-food production due to the input taxes rebated as output subsidies. Finally, we show that the underestimation is robust to the other arguments raised by the EC.