General Equilibrium Modeling Approach Research Articles

Fiscal Policy for Inclusive Growth. A Case Study of Myanmar

Following decades of isolation under military rule, Myanmar initiated historic political reforms since 2011, but faces challenges translating liberalization into broad-based advancement. A dynamic stochastic general equilibrium modelling approach estimated on Myanmar data is used, with simulations quantifying potential growth and distributional impacts of strategic government expenditure reallocations towards infrastructure upgrading, agricultural investments, expanded social transfers and progressive tax reforms. Results indicate sustained infrastructure and rural productivity spending have high output multipliers while well-targeted transfers reduce income inequality. However, institutional absorptive capacities condition realization of social returns. Complementary governance enhancements like project oversight and competitiveness in public investment allocation prove vital. Regional peer benchmarking provides comparative lessons. Altogether, evidence-based fiscal reorientation towards addressing pressing human capital, rural-urban and firm competitiveness constraints can accelerate inclusive growth in Myanmar if pursued prudently. Sustainable expansion requires strengthening public financial management (PFM) systems and results monitoring.

The problems of macroeconomics as institutional problems: complementing the ‘what went wrong’ story with a social epistemology perspective

Abstract After the financial crisis of 2008, many economists expressed dissatisfaction with the state of macroeconomics. They criticised deficiencies in the dominant dynamic stochastic general equilibrium modelling approach and conceptions of good macroeconomic research behind that dominance. This paper argues that there is a deeper problem in macroeconomics, which remains unaddressed. I connect existing literature critical of the institutions of macroeconomics and of economics in general to the institutional preconditions of effective criticism outlined by the philosopher Helen Longino. I find that as an epistemic community, macroeconomics does not function in a way that adequately supports critical evaluation of established beliefs, norms and practices. This failure may partly explain why many views on macroeconomic modelling, the tenability of which economists questioned after the crisis, were able to persist for so long. My analysis gives additional support to several recent proposals for institutional reforms in economics.

Evaluating the impacts of renewable energy promotion policies on sustainable development: A computable general equilibrium model approach

Previous research has examined the double-dividend effects of renewable energy expansion policies, but the impact of financing mechanisms used to support this expansion has been overlooked. To address this gap, our study analyzes the economy-wide impacts of renewable energy expansion policies in Korea, with a specific focus on financing mechanisms. We employ a recursive dynamic computable general equilibrium model that considers imperfections in labor markets, heterogeneous households, and various electricity generation technologies. Our analysis examines the effects of various financing options for renewable energy on economic growth, the labor market, and social welfare, both with and without emission regulations. Our results reveal a trade-off between efficiency and equality when it comes to financing renewable energy expansion. Specifically, we find that financing the expansion through a lump-sum tax is the most efficient option, resulting in the smallest reduction in GDP compared to the business-as-usual scenario. However, this option also has the greatest negative impact on income inequality, as it leads to an increase in skill premiums and capital prices, exacerbating income disparities between households. Our findings suggest that renewable energy expansion tends to be regressive, with low-income households bearing a relatively larger burden of the costs associated with the expansion. Policymakers need to consider a range of options for alleviating income inequality and labor market disparity, such as targeted subsidies or transfers, to ensure a fair and efficient transition to a sustainable energy system.

Budget Variation and Welfare in Cameroon: a Computable General Equilibrium Model Approach

The objective of this paper is to determine the impact of a variation in government spending on the well-being of the population in Cameroon. We use the Computable General Equilibrium Model (CGEM) developed by Decaluwé et al., [1] calibrated on the 2016 Social Accounting Matrix (SAM) for Cameroon [1]. This SAM is constructed from the Resources and Uses Table (RUT) and national accounts data from the National Institute of Statistics [2]. The welfare is measured by the equivalent variation indicator. The results show that a 20% increase in public expenditure would contribute to improving the well-being of salaried households and capitalist households by 883.58 billion CFAF and 5.47 billion CFAF respectively. This improvement in wellbeing is achieved through a reduction in the current price of goods and services in the various sectors (0.76% for agriculture, 0.53% for industry, 0.76% for services and 0.57% for public services) on the one hand, and through an increase in household income on the other, whether they are salaried or capitalist earners.

The impact of Industry 4.0 on the Indonesian economy: A general equilibrium assessment

AbstractUsing a recursive‐dynamic multiregional computable general equilibrium (CGE) modelling approach, we introduced a set of sector‐specific labour productivity shocks representing the effect of Industry 4.0 on the Indonesian economy. The results suggest that Indonesia’s long‐term economic growth will increase from 5.2% per year to 5.7% per year. In terms of output expansion, the top gainer would be the machinery and motor vehicles sector, and to a lesser extent, finance, whereas low gainers include extractive and agricultural sectors and food processing industries. Region‐wise, Java, the already advanced region, will be the primary beneficiary of the growth, while other islands will not benefit as much. There is not much risk of unfavourable distributional effect. However, agriculture workers will lose out compared with workers in other sectors, particularly those with intermediate skill levels.

Environmental Effects of the African Continental Free Trade Agreement: A Computable General Equilibrium Model Approach

Growth and development in middle- and low-income countries often come at an environmental cost, but is that trade-off always necessary? This study uses a computable general equilibrium model to estimate the macroeconomic and environmental impact of the world’s most significant plurilateral trade agreement, the African Continental Free Trade Agreement (AfCFTA). We build a novel dataset using the Global Trade Analysis Project data, which allows us to estimate the effect on emissions of carbon dioxide (CO2), non-CO2, and other pollutants. In terms of macroeconomic impact, African nations benefit from gross domestic product growth by 1.2% and employment by 2.1%, with less developed economies, such as Togo and Benin, obtaining the largest macroeconomic gains from trade liberalization. On aggregate, we estimate that the agreement will lead to a marginal, 0.3% increase in CO2 emissions, a 19.6% increase in non-CO2 greenhouse gas emissions, and a 21.5% decline in air pollutants. We find considerable heterogeneity across countries. For Nigeria, the rest of Central Africa, and South-Central Africa, the AfCFTA is expected to reduce emissions, while in Ethiopia, Cameroon, and Burkina Faso, estimations show an increase. Transit countries connected to large ports, such as Togo and Benin, are most negatively impacted. We conclude that while the AfCFTA implementation is expected to lead to notable improvements in air quality by reducing air pollutants, the resulting increase in climate-related emissions may require member countries to make concerted efforts to deal with the adverse effects.

Reducing tax compliance costs through corporate tax base harmonization in the European Union

The aim of the Common Consolidated Corporate Tax Base (CCCTB) proposal made by the European Commission is to reduce both tax compliance costs and tax avoidance opportunities of cross-border operations within the European Union. However, to date the scarcity of comparable estimates of tax compliance costs has limited researchers’ ability to assess the probable impact of this proposal. We exploit recently released unique survey data designed to provide comparable information on corporate tax compliance costs in order to assess the impact of the CCCTB, using a general equilibrium modeling approach. Our results suggest that the reduction in tax compliance costs would be associated with greater economic efficiency. Member states with the lowest compliance costs before the reform and those that have large inward foreign investment stock would benefit more than other member states. Cross-border business operations would also benefit more than domestic ones. The impact on non-EU countries, such as the US and Japan, would be limited.

Long-term impacts of bio-based innovation in the chemical sector: A dynamic global perspective

Biochemicals constitute a key sector in the bioeconomy, but their future expansion depends on biomass availability. This study employs an integrated global Computable General Equilibrium (CGE) modeling approach to quantify the impacts on land-use change, greenhouse gas (GHG) emissions and socioeconomic indicators, when reducing biomass conversion costs for global biochemical production by 1.5% annually until 2050. Global demand for crop- and forest-based feedstock by the chemical industry increases sharply in 2050, e.g. by 327% for wheat; driving up agro-food prices, e.g. by 3.5% for oilseeds and 3.9% for sugarcane in Brazil. Chemical output decreases in countries that rely on imported biomass for biochemical production, such as Germany, France or the United States; while it increases, for instance, in Brazil and Australia, which use mainly domestic feedstock. Increased biomass demand entails significant natural forest cover loss across South America and Asia, and, to a lesser extent, in North America. Subsequent GHG emissions from global losses in carbon stocks outweigh GHG savings from reduced fossil fuel consumption, resulting in a net increase in GHGs of 107 Mt in 2050 relative to the baseline. Results suggest that R&D investments in bio-based sectors should be complemented with coherent policies to prevent deforestation and negative impacts on the Sustainable Development Goals.

The Effect of Climate Change on Economic Growth (Dynamic Computable General Equilibrium Model Approach in Iran)

Climate change is one of the most important issues affecting different economic sectors. Although this phenomenon has had a larger effect on the agricultural sector due to the heavy dependence of agriculture on weather conditions as compared to the other economic sectors, other economic sectors such as the industry, mining and service sectors are also influenced by weather changes due to their intra-sector dependence on the agricultural sector. Accordingly, the effect of climate change on the economic growth of Iran was examined in this research using the DynamicComputable General Equilibrium (DCGE) model. Our investigation revealed that the decrease in the precipitation in the twenty-year horizon (2011 to 2030) will reduce consumption in all sectors. Moreover, while production in the agriculture and mining sectors declines, it escalates with a descending trend in the industry and service sectors. Based on our findings, as a result of the decreased investment in the other sectors, investment in the agriculture, industry, and mining sectors decreases, whereas it rises in the service sector. Given the research results and the challenge of climate change facing this country, the Iranian government must devise a master practical plan to adapt to and confront this phenomenon and reduce its adverse effects.

EXPLORING THE EFFECTS OF INCREASED GOVERNMENT AGRICULTURAL EXPENDITURE ON NIGERIAN ECONOMY USING COMPUTABLE GENERAL EQUILIBRIUM MODELLING APPROACH

The study was conducted to examine the effects of increased government agricultural expenditure on Nigerian economy using computable general equilibrium (CGE) modelling approach. The research used simple, practically-oriented exposition of computable general equilibrium (CGE) modelling. The study relied strictly on secondary data, to estimate parameters of the model before simulation using the Nigerian Social Accounting Matrix (SAM) of 2012 as the base year data in General Algebraic Modelling System developed (GAMS) by IFPRI for this analysis. The 2012 SAM is the most recent SAM data for Nigeria. But after the parameters were estimated, the 2018 SAM data used for the simulation. This 2018 SAM data capture 83 activities, 84 commodities, 18 factors, 15 categories of households, 5 taxes, and 6 other accounts. The result shows that the introduction of 10% on government expenditure affects virtually many sector of Nigerian economy in a different ways. The findings of the study revealed that most macroeconomic variables have shown positive changes except for consumption in government investment which was reduce by 2.00%. The gross domestic product (GDP) at market prices increased by 0.28%, 1.05% on transport and communication and 0.73% for trade margin. On exports increase by 0.98 per cent, 0.36% and 0.59%. Other manufactured products increased by 2.1%, 0.7%, and 0.6%, other capital equally increases by 1.21%, 0.82% and 0.44%. Household income increase for rural for those with primary education at 0.22%, 1.7% and 1.72%. Changes in investment, affect rural labour for the non-school sector, which was reduced by 0.84%, although, the value of the land on government investments equally reduces by 0.69%, capital reduces by 0.76%, livestock equally reduces by 0.71%. The impact of 10.00% shock result in changes in urban household with primary education increases by 3.37% followed by labour household with secondary education with 3.17%. The study concluded, that application of 10.00% shocks impacted both positively and negatively on several sectors of the economy like GDP at market prices, sectoral GDP, prices, nominal household income and export. The study recommended the need for government at all tiers to examine the effect of such policy on other sectors of the economy. It is therefore recommended that Government should enhance expenditure by 10.00% to stimulate productivity, output and consumption, Govt. should support short term agricultural consumption subsidy policy measure, increase government investment on research and development (R&D).

Collaborative optimal carbon tax rate under economic and energy price shocks: A dynamic stochastic general equilibrium model approach

Existing literature on climate policy analysis in an international environmental agreement does not condition the optimal policy on the economic conditions of the countries. This paper constructs a two-country environmental dynamic stochastic general equilibrium (E-DSGE) model to compare the optimal carbon tax rates between countries in noncooperative and cooperative scenarios in the presence of different economic shocks. Compared to those in the cooperative scenario, countries without cooperation would have an optimal carbon tax rate that increases less in response to a positive home-country total factor productivity (TFP) shock and decreases more in response to a positive energy price shock. Further, in the noncooperative scenario, the carbon tax rate decreases in response to the foreign-country TFP shock, but to a lesser extent than that in the cooperative scenario. Countries’ cooperation does not necessarily lead to a lower emissions stock. It decreases only in response to positive home- and foreign-country TFP shocks, and it increases in response to a positive energy price shock.

On the impacts of anticipated carbon policies: A dynamic stochastic general equilibrium model approach

This paper examines the environmental and welfare impacts of pre-announced carbon policies using an environmental dynamic stochastic general equilibrium (E-DSGE) model. We find that pre-announcing a rise in the carbon tax rate could reduce CO2 emissions but would decrease output and investment during the interim period (between the announcement and implementation dates). Pre-announcing an increase in the carbon tax rate from 1% to 5%, 1 and 3 years in advance could reduce the quarterly aggregate consumption by 0.081% and 0.114%, respectively. Compared to carbon taxation, pre-announcing a tightening carbon intensity target could reduce CO2 emissions even more, while pre-announcing a tightening carbon capacity target under a cap-and-trade regime has no such CO2 reduction effect. In a welfare analysis, we show that an unanticipated rise in the carbon tax rate is more preferable to the 1-year, 2-year, and 3-year-ahead announcements. The intensity regime produces a greater welfare than the cap-and-trade regime, which is in turn better than the carbon taxation regime.

Renewable energy expansion in the Chilean power market: A dynamic general equilibrium modeling approach to determine CO2 emission baselines

Abstract Over the last decade, a high dependency on carbon-intensive fuels in the Chilean power sector has led to environmental concerns, particularly regarding rapid growth in CO2 emissions. More recently, the power sector has experienced significant structural changes with a rapid expansion of renewables in the energy matrix, and this trend is expected to cause significant variations in future CO2-emission baseline scenarios. To investigate the economy-wide impact of renewable energy expansions in Chile’s energy mix, this research, based on a Computable General Equilibrium (CGE) model, examines different CO2 emission baseline scenarios. However, because traditional CGE modeling approaches cannot capture the impact of a sector’s recent structural changes, we present a step-by-step approach to incorporate different energy matrices from an external engineering bottom-up model into the CGE model. The results indicate that the Business as Usual (BAU) scenario, in which structural changes are not considered, significantly overstates expected emissions. Conversely, considering structural changes in our CGE model shows Chile advancing towards its declared Nationally Determined Contribution (NDC) to reduce greenhouse gas emissions. Furthermore, the methodology implemented in the study has the advantage of being a simple integrated approach that is coherent with current modeling capacities in many developing contexts.

THE DEVELOPMENT OF GREEN ENERGY POLICY PLANNING MODEL TO IMPROVE ECONOMIC GROWTH IN INDONESIA

Energy is an element that is vital in everyday life. Its use continues to increase along with the increasing demand for energy which is influenced by population growth and economic growth. Until now, energy use is still dominated by the depletion of fossil energy, while its management is still not optimal. Energy planning needs to be done as the basis of a government policy in managing energy in order to realize national energy independence and security. This paper focuses on achieving the use of new and renewable energy according to the target of the National Energy Policy in 2025 in Java Island. Energy planning is carried out using the Computable General Equilibrium (CGE) model approach, which is an approach that can illustrate the balance between energy supply and needs. Simulations are made in the Green Energy (GREN) scenario by including several key parameters for the year of projections 2016-2025. The simulation results show an increase in the percentage of new and renewable energy use in the energy mix in 2025 by 12%. This explains that the target of National Energy Policy towards the use of new and renewable energy is reached, which is equal to 23%.Keywords: green energy, projection, LEAP, new and renewable, CGE.JEL Classifications: P18, Q43, Q47, Q48DOI: https://doi.org/10.32479/ijeep.7779

Health co-benefits of sub-national renewable energy policy in the US

State and local policy-makers in the US have shown interest in transitioning electricity systems toward renewable energy sources and in mitigating harmful air pollution. However, the extent to which sub-national renewable energy policies can improve air quality remains unclear. To investigate this issue, we develop a systemic modeling framework that combines economic and air pollution models to assess the projected sub-national impacts of Renewable Portfolio Standards (RPSs) on air quality and human health, as well as on the economy and on climate change. We contribute to existing RPS cost-benefit literature by providing a comprehensive assessment of economic costs and estimating economy-wide changes in emissions and their impacts, using a general equilibrium modeling approach. This study is also the first to our knowledge to directly compare the health co-benefits of RPSs to those of carbon pricing. We estimate that existing RPSs in the ‘Rust Belt’ region generate a health co-benefit of $94 per ton CO2 reduced ($2-477/tCO2) in 2030, or 8¢ for each kWh of renewable energy deployed (0.2–40¢ kWh−1) in 2015 dollars. Our central estimate is 34% larger than total policy costs. We estimate that the central marginal benefit of raising renewable energy requirements exceeds the marginal cost, suggesting that strengthening RPSs increases net societal benefits. We also calculate that carbon pricing delivers health co-benefits of $211/tCO2 in 2030, 63% greater than the health co-benefit of reducing the same amount of CO2 through an RPS approach.

A hybrid partial and general equilibrium modeling approach to assess the hydro-economic impacts of large dams – The case of the Grand Ethiopian Renaissance Dam in the Eastern Nile River basin

A novel integrated hydro-economic modeling framework that links a bottom-up partial equilibrium (engineering) model with a top-down (economic) general equilibrium model is developed for assessing the regional economic impacts of water resources management and infrastructure development decisions in a transboundary river basin. The engineering model is employed first to solve the water allocation problem for a river system in a partial equilibrium setting. The resulting system-wide changes in optimal water allocation are subsequently fed into the general equilibrium model to provide an economy-wide perspective. This integrated hydro-economic modeling framework is illustrated using the Eastern Nile River basin as a case study. The engineering-based stochastic dual dynamic programming (SDDP) model of the Eastern Nile basin is coupled with the computable general equilibrium (CGE) model GTAP-W to assess the economy-wide impacts of the Grand Ethiopian Renaissance Dam (GERD) on the Eastern Nile economies.

A comparative assessment of the economic benefits from shale gas extraction in the Karoo, South Africa

It has been said that the development of a shale gas industry could be a ‘game changer’ for South Africa. Proponents of shale gas tend to emphasise the benefits, whilst opponents emphasise the environmental costs. This paper is an attempt to inform the policy debate by highlighting both the potential economic benefits and environmental costs. To date, the Econometrix report (published in 2012) provides the only estimate of the economic impacts that may emanate from developing the Karoo’s shale gas. The report uses a Keynesian multiplier model to estimate the impacts. The analysis performed in this paper estimates the economic impacts using a Computable General Equilibrium (CGE) modelling approach, and the results are compared to the findings of the Econometrix report. In doing so, this paper provides an expanded view of the potential economic impact. Accordingly, this paper provides a number of findings on the estimated economic impact of shale gas extraction – based on the application of an economy-wide impact modelling methodology – which should be of interest to both opponents and proponents of the shale gas industry. By including all possible results, such as a boost in public sector jobs and an analysis of the impact on consumer prices and jobs in other sectors, this paper expands the current understanding of the likely impact of shale gas extraction in the Karoo of South Africa. Â

Re-analyzing the economic impact of a global bunker emissions charge

Regulating bunker emissions continues to be a challenging task, largely due to the lack of a globally coordinated scheme providing economic and political incentives to potential participating countries. This paper analyses the economic costs and benefits of imposing a global carbon tax on international bunker emissions by employing a computable general equilibrium model approach. Under the assumption of an emissions reduction of 5% below 2000 levels by 2020, we demonstrate that a global bunker emissions charge, on one hand, reduces trade volume and change trade patterns between countries and regions, while on the other hand, accelerates the adoption of energy-saving technologies and reallocates the supply of international transportation services throughout the world. The net economic impact, though negative on average, is modest compared to the benefits obtained from the emissions reduction. If revenues from a bunker emissions charge are properly distributed among countries and regions, the losses to disadvantaged countries are likely to be offset by the benefits to advantaged countries. This finding provides useful insights for policy-makers: a global bunker emissions charge could, in future, be an economically feasible strategy to reduce the increasing bunker emissions through the implementation requires more political effort and wisdom.

Financing the sustainable management of Rwanda's protected areas

ABSTRACTRwanda's Nyungwe National Park is a biodiversity hotspot with the most endemic species in the ecoregion and the highest number of threatened species internationally. Nyungwe supplies critical ecosystem services to the Rwandan population including water provisioning and tourism services. Tourism in the Park has strong potential for financing enhanced visitor experiences and the sustainable management of the Park. This paper explores quantitatively the economic impacts of adjustment in Park visitation fees and tourism demand as a source of revenues to improve Park tourism opportunities and ongoing operations and maintenance. The methods developed in this paper are novel in integrating the results of stated preference techniques with a regional computable general equilibrium modelling approach to capture multisectoral, direct, indirect and induced impacts. Such methods have strong potential for assessing revenue generation alternatives in other contexts where park managers are faced with the need to generate additional revenue for sustainable park management while facing diminishing budget allocations. Results of this analysis demonstrate that adjustment of Park fees has a relatively small impact on the regional economy and well-being when compared with a strategy aimed at generating increased tourism demand through investment in improving the visitor experience at Nyungwe National Park.

ECONOMIC IMPACT OF SUBSIDY POLICIES TO ELECTRIC VEHICLE SOCIETY IN TOYOHASHI CITY IN JAPAN — A CGE-MODELING APPROACH

In this paper, we explore the economic impact of promotion and realization of an electric vehicle society (EVS). More concretely, this paper emphasizes a computable general equilibrium (CGE) modeling approach to evaluate the following issues: economic impacts of subsidies for promotion of an EVS, the possibility of price reductions, industrial structure change toward an EVS, and modal shift occurring toward an EVS. Our simulation results demonstrate that after applying 5–25% up subsidies to five industries, such as electric vehicle (EV) manufacturing, EV transport, solar power, cogeneration and other transport, the total industrial output and city GDP increase. A large growth rate is found in industries where subsidies are introduced alone with non-ferrous metal industry. However, it is interesting that decreasing proportions are found in oil and coal product, mining, heat supply and gasoline vehicle (GV) transport industries. Moreover, all the commodity prices decrease since subsidies are given to some industries. Hence Toyohashi City’s economy shows a direction where the demand for conventional vehicles and energy use are decreased, conversely, the demand for EVs and renewable energy are increased illustrating a different life style from the current one. However, it does not mean that the total CO2 emission is decreased. EV society makes some industrial outputs larger. Due to the fact that some industrial outputs are increased, CO2 emissions of EV manufacturing and nonferrous metal are increased more than decreased industries. Thus, introducing 5–25% subsidies to EV manufacturing, EV transport, solar power, cogeneration and other transport can really represent a realistic alternative society to EVS if the total CO2 emission can be reduced. Therefore, we have to think what can make the total CO2 emission reduced.