Sequential linking of Computable General Equilibrium and microsimulation models: a comparison of behavioural and reweighting techniques

Several approaches have recently been developed to combine a computable general equilibrium model (CGE) and a microsimulation (MS) model. These so-called CGE-MS models enjoy a growing interest because they build a bridge between macro- and microeconomic analyses. This paper focuses on the „top-down? approach. In this context, the CGE model is used to simulate the changes at the macroeconomic level after the policy change, which are then passed on to the MS model. The aim of this paper is to compare the „top-down? approach introduced by Bourguignon et al. (2003) based on a behavioural MS model with an alternative and simpler approach making use of a non-behavioural MS model in combination with a reweighting procedure. Both approaches are presented and applications are provided using South African data. We compare the results obtained with both approaches for a typical simulation of the impact of trade liberalisation on income distribution. The reweighting approach introduces a small bias in the results, however without modifying the main conclusions. This is an indication that, given its relative simplicity compared to the behavioural approach, the reweighting approach can constitute a good alternative when data or time constraints do not allow the use of the behavioural approach and when the interest does not lie in the production of individual-level transition matrices.computable general equilibrium model; microsimulation; South Africa; income distribution; trade liberalisation

Building and Linking a Microsimulation Model to a CGE Model : the South African Microsimulation Model

This paper describes the project of building a micro-macro model for South Africa. The aim is to deal with the links between globalisation and poverty or inequality, explaining the effects of trade liberalisation on poverty and inequality. The main issue of interest is the effect of international trade on households (especially their income); some changes may contribute to reduce poverty while other changes could work against the poor. The approach presented in this paper relies on combining a macro-oriented CGE model and a microsimulation model. Combining these two models the microeconomic effects (on poverty and inequality) of a macroeconomic policy (trade liberalisation) can be analysed. The paper gives details about the microsimulation model and the "top-down" approach used to link the microsimulation model and the CGE model. In addition, the methodology discussed is applied to South African data and a selection of preliminary results using this approach are presented and discussed. The main concern regarding poor households is whether the decrease in real (or nominal) earnings for formal low-skilled and skilled workers is offset by the upward trend in formal employment levels. This appears to be the case implying a decrease in poverty due to trade liberalisation. Although whites emerge as the main winners, the increase in inter-group inequality is more than compensated by the decrease in intra-group inequality. Ce papier décrit le projet d’élaboration d’un modèle micro-macro pour l'Afrique du Sud. L’objectif est d’examiner les liens entre la mondialisation et la pauvreté ou l'inégalité, en expliquant les effets de la libéralisation commerciale sur ces deux indicateurs de progrès social. La préoccupation principale concerne l'effet du commerce international sur les ménages (particulièrement, leur revenu), certains changements pouvant contribuer à réduire la pauvreté, tandis que d'autres étant susceptibles d’aggraver les privations. L'approche présentée dans cet article est fondée sue la combinaison d’un modèle CGE orienté-macro et d’un modèle de micro-simulation. En combinant ces deux modèles, les effets micro-économiques (sur la pauvreté et l'inégalité) d'une politique macro-économique (libéralisation commerciale) peuvent être analysés. L’étude spécifie le modèle de micro-simulation et l'approche « top-down », employés pour relier les modèles de micro-simulation et CGE.En outre, la méthodologie discutée est appliquée aux données sud-africaines, et des résultats préliminaires, fondés sur cette approche, sont présentés et discutés. Un élément central de l’analyse concernant les ménages pauvres est d’examiner si la diminution des revenus réels (ou nominaux) des ouvriers qualifiés ou faiblement qualifiés du secteur formel est compensée par la tendance à la hausse de l’emploi formel. L’étude montre que cela semble être le cas, ce qui implique une diminution de la pauvreté due à la libéralisation commerciale. Bien que les bénéficiaires principaux soient les « blancs », l'augmentation de l'inégalité inter-groupes est plus que compensée par la diminution de l'inégalité intra-groupes. (Full text in english)

Sheepskin Effects in the Returns to Education: Accounting for Enrolment and Completion Effects

This paper contributes to the literature by separately analysing the signalling (or sheepskin) effects of the enrolment in and the completion of vocational education and training as well as higher education. Moreover, we investigate the persistence of these sheepskin effects over time. We take advantage of the Longitudinal Surveys of Australian Youth, which contains comprehensive information about completed and uncompleted courses and subsequent labour market outcomes. We find that signalling effects form a substantial part of the total return to education but that they vary by type of course. In addition, we show that both course attendance and course completion contribute to the overall signalling effects.Return to education, signalling effects, post-secondary education

Decomposing Inequality and Social Welfare Changes: The Use of Alternative Welfare Metrics

This paper presents two 'non-welfarist' approaches and one 'welfarist' approach to decompose changes in inequality and social welfare into three components. We distinguish the contributions of population, tax policy and labour supply behavioural effects. As an illustration, we decompose changes in inequality and in values of a social welfare function in Australia between 2001 and 2006. Inequality is first defined in non-welfarist terms as a function of disposable income: the independent judge places no value on leisure. Then this is modified to allow for evaluations using a weighted geometric mean of disposable income and leisure. This is seen to modify the evaluation of changes in important ways. Furthermore, the results are shown to be quite different from those obtained using a 'welfarist' evaluation in terms of money metric utility, where separate behavioural effects cannot be isolated.Inequality decomposition, social welfare function, behavioural microsimulation, money metric utility

Decomposing Inequality and Social Welfare Changes : The Use of Alternative Welfare Metrics

This paper presents two ‘non-welfarist’ approaches and one ‘welfarist’approach to decompose changes in inequality and social welfare into three components. We distinguish the contributions of population,tax policy and labour supply behavioural effects. As an illustration,we decompose changes in inequality and in values of a social welfare function in Australia between 2001 and 2006. Inequality is first defined in non-welfarist terms as a function of disposable income: the independent judge places no value on leisure. Then this is modified to allow for evaluations using a weighted geometric mean of disposable income and leisure. This is seen to modify the evaluation of changes in important ways. Furthermore, the results are shown to be quite different from those obtained using a ‘welfarist’ evaluation in terms of money metric utility, where separate behavioural effects cannot be isolated.

Dynamics of Household Joblessness: Evidence from Australian Micro-Data 2001–2007

This paper investigates the persistence over time of living in a jobless household, aiming to disentangle the roles of state dependence and unobserved heterogeneity. In addition, the potential heterogeneity of state dependence is examined through estimation of interaction terms with the lagged household joblessness variable. Finally, the robustness of results is explored through the use of alternative definitions of household joblessness each based on different variables available in our data. Using the two definitions that are most different, we find substantial state dependence which is larger for women than for men under both definitions. That is, being in a jobless household in the previous year increases the probability of currently living in a jobless household by 7.7 to 17.2 percentage points for men and 12.7 to 25.1 percentage points for women. Although state dependence clearly is an important factor, as are a number of observed characteristics, unobserved heterogeneity also plays an importantrole for men and women: 32 to 40 per cent of the unexplained variance can be attributed to unobserved heterogeneity for men, and for women this is 42 to 46 per cent. A few characteristics (age, disability, student status, living outside of major cities, having a university degree, presence of preschool children) seem to affect the level of state dependence to some extent. However, aside from the age effect, which can increase state dependence by up to 50 per cent for men aged 60 to 64, the level of state dependence seems fairly homogenous amongst men and amongst women.Household joblessness, state dependence, unobserved heterogeneity

Mondialisation et pauvreté : les faiblesses des modèles d'équilibre général calculable

Au cœur de la controverse qui oppose actuellement les partisans de la mondialisation et les mouvements « alter-mondialistes » se trouve la question des effets de la libéralisation commerciale sur les pays en développement (PED), et donc en particulier sur l'un des problèmes majeurs de ces pays, à savoir la pauvreté. Le débat sur ce point est d'autant plus intense qu'il ne paraît pas possible de trancher la question par la simple observation des expériences passées. La réponse des économistes à ces problèmes s'est faite en faisant appel à la modélisation et l'évaluation empirique. En effet, étant donné que certaines interactions sont positives et d'autres négatives, il devient nécessaire de faire appel à des études quantitatives. C'est dans ce but que sont utilisés les modèles d'équilibre général calculable (MEGC). Ils visent à représenter de la manière la plus fidèle possible le fonctionnement de l'économie du pays étudié. En particulier ils permettent de tenir compte des nombreuses interactions (en particulier intersectorielles) et aussi d'isoler les effets de différents facteurs. Il s'agit ici de nuancer ces résultats en soulignant les nombreuses difficultés auxquelles se heurtent ces approches quantitatives. Les difficultés auxquelles s'expose l'évaluation quantitative des effets de la libéralisation commerciale sur la pauvreté relèvent principalement de trois catégories : celles relatives à la disponibilité et à la qualité des données, les difficultés concernant la définition et donc les mesures de la pauvreté, des inégalités et de la mondialisation, et enfin les difficultés méthodologiques liées aux méthodes de modélisation en équilibre général. In the debate between “pro” and “anti” globalization one of the main questions dealswith the effects of trade liberalization on developing countries, and especially on poverty. Theargumentation on this point is very controversial since it is impossible to answer this questionsimply by looking back to the past and observing what has happened to different countries:experiences are too diverse. Moreover some consequences of globalization may help to reducepoverty while some others clearly work against the poor. Economists recommend solving theseproblems by using models and empirical evaluation. Computable general equilibrium (CGE) modelsare used in this way. They are designed to explain as accurately as possible the running of theeconomy of the country studied. They are able to take into account many interactions (inparticular between different economic activities) and to separate the effects of differentfactors. By highlighting the various difficulties inherent to such modeling, this paper tries tomake clear why the results of these models are questionable. The main difficulties faced byquantitative evaluations of the impacts of trade liberalization on poverty may be displayed inthree categories: those associated to data availability and quality; those regarding thedefinitions and thus the measures of poverty, inequality and globalization; and eventually themethodological difficulties linked to such modeling in general equilibrium. (Full text inFrench)

Un modèle d'équilibre général calculable (MEGC) pour évaluer les effets de l'ouverture au commerce international : le cas de l'Afrique du Sud

Cet article présente les résultats d'un modèle d'équilibre général calculable (MEGC) appliqué au cas de l'Afrique du Sud. L'objectif est d'évaluer les effets des politiques de libéralisation commerciale sur la croissance économique, les dynamiques sectorielles et, dans une moindre mesure, les revenus des ménages. Le modèle utilisé comporte 43 secteurs, 4 facteurs de production, 14 ménages représentatifs, 10 régions du monde (pour le commerce extérieur) et tient compte de certaines imperfections des marchés (chômage,…). Deux types de politique sont simulés : l'accord de libre échange signé en 1999 avec l'Union Européenne et une suppression unilatérale de tous les droits de douane. Quatre procédures de bouclage différentes sont utilisées pour chaque simulation. Bien que positifs, les impacts s'avèrent limités, tant sur la croissance du commerce extérieur que sur celle du PIB. D'autre part, les politiques d'ouverture commerciale nuisent à certains secteurs industriels et surtout, semblent accroître systématiquement les inégalités de revenu. This article presents the results of various simulations carried out on South Africa using a computable general equilibrium (CGE) model. The aim is to analyze the effects of various trade liberalization policies on economic growth, activities dynamics, and to a less extent, on households’ incomes. The CGE model consists in 43 activities, 4 production factors, 14 representative households, 10 trading regions (for the foreign trade). Some market imperfections, like unemployment, are taken into account. Two kinds of policies are simulated: the free trade agreement signed with the European Union in 1999 and the elimination of tariff barriers. Each simulation is run under four different sets of closures. Although positive, the impacts are limited, as well as on the growth of the foreign trade as on that of the GDP. Besides, trade liberalization negatively affects the activity levels of some industries, and above all, it seems to systematically increase the income inequalities. (Full text in french)

Decomposing Inequality and Social Welfare Changes: The Use of Alternative Welfare Metrics

This paper presents two ‘non-welfarist’ approaches and one ‘welfarist’ approach to decompose changes in inequality and social welfare into three components: population, tax policy and labour supply effects. As an illustration, changes in inequality and in values of a social welfare function in Australia between 2001 and 2006 are examined. Inequality is first defined in non-welfarist terms as a function of disposable income: the independent judge places no value on leisure. Then this is modified to allow for evaluations using a weighted geometric mean of disposable income and leisure. This is seen to modify the evaluation of changes in important ways. Furthermore, the results are shown to be quite different from those obtained using a ‘welfarist’ evaluation in terms of money metric utility, where separate behavioural effects cannot be isolated

Decomposing Inequality and Social Welfare Changes: The Use of Alternative Welfare Metrics

This paper presents two ‘non-welfarist’ approaches and one ‘welfarist’ approach to decompose changes in inequality and social welfare into three components: population, tax policy and labour supply effects. As an illustration, changes in inequality and in values of a social welfare function in Australia between 2001 and 2006 are examined. Inequality is first defined in non-welfarist terms as a function of disposable income: the independent judge places no value on leisure. Then this is modified to allow for evaluations using a weighted geometric mean of disposable income and leisure. This is seen to modify the evaluation of changes in important ways. Furthermore, the results are shown to be quite different from those obtained using a ‘welfarist’ evaluation in terms of money metric utility, where separate behavioural effects cannot be isolated