Scaling up infrastructure spending in the Philippines: A CGE top-down bottom-up microsimulation approach

In this paper we use a top-down bottom-up CGE microsimulation model with endogenous labour supply and unemployment to explore the impact of scaling up infrastructure spending in the Philippines. In the current debate on the importance of scaling up infrastructure to stimulate growth, some analysts raise concerns about potential negative macroeconomic impacts (Dutch disease). This study aims to provide some insight into this debate by extending the analysis to include distributional analysis. We draw from the infrastructure productivity literature to postulate positive productive externalities of new infrastructure and from Fay and Yepes (2003) to include operating and maintenance costs associated with new infrastructure. We investigate two fiscal tools and foreign aid as mechanisms to fund the new infrastructure and associated costs. The distributional analysis is performed with FGT indices and growth incidence curves. Our results reveal that infrastructure spending reduces poverty. Foreign aid is shown to be the most equitable funding mechanism, whereas a value added tax provides the strongest poverty reduction.Investment externalities, infrastructure, foreign aid, fiscal reforms, poverty, CGE, microsimulation.

Poverty and Income Distribution in a CGE-Household Micro-Simulation Model: Top-Down/Bottom Up Approach

This paper highlights the idea of combining CGE modeling with a micro-household model (micro-simulation) to generate a convergent solution, thus providing the basis to perform counterfactual analysis of trade and fiscal policies, and their impact on poverty. In recent years, a number of papers have presented differen approaches using CGE models to analyze poverty. Among them, the standard CGE models, which generates changes in the income of representative households in order to allow poverty analysis, albeit with no intra-group changes in the distribution; CGE models with high levels of household disaggregation (3200) and the micro-simulation approach to modeling (with no feedback effect to the CGE model). In this paper, we provide an alternative to these methods that allows a richer micro-household modeling than the first two approaches, while keeping the properties of standard CGE (feedback effect of household behavior) which is usually simplified in micro-simulation context. We also introduce segmented labor markets, with waiting unemployment, inspired by Magnac (1991), which provides a basis for important changes in household income (i.e. when a worker leaves unemployment or becomes unemployed). Global and decomposable poverty analysis and income distribution indicators are computed at base year and after a 50% reduction in trade.Computable general equilibrium models, estimation, personal income and wealth distribution, measurement and analysis of poverty

The Labour Market in CGE Models

This paper reviews options of labour market-modelling in a CGE framework. On the labour-supply side, two principal modelling options are distinguished and discussed: aggregated, representative households and microsimulation based on individual household data.On the labour-demand side, we focus on the substitution possibilities between different types of labour in production.With respect to labour-market coordination, we discuss several wage-forming mechanisms and involuntary unemployment. � �

The labour market in CGE models

This chapter reviews options of labour market modelling in a CGE framework. On the labour supply side, two principal modelling options are distinguished and discussed: aggregated, representative households and microsimulation based on individual household data. On the labour demand side, we focus on the substitution possibilities between different types of labour in production. With respect to labour market coordination, we discuss several wage-forming mechanisms and involuntary unemployment. --computable general equilibrium model,labour market,labour supply,labour demand,microsimulation,involuntary unemployment

Poverty, Income Distribution and CGE Modeling: Does the Functional Form of Distribution Matter?

In this paper, we provide an overview of approaches used to model income distribution and poverty in CGE models. CGE models have started to use income distribution functional forms such as the lognormal, Pareto, beta distribution and Kernel non-parametric methods to apply GFT poverty indices. None of the authors of these papers have gone into much detail to justify the use of one method or functional form over the other, within the context of this type of work. Extensive literature exists on the choice of functional forms to estimate income distribution; however it has not been utilized in the CGE context. Given the fact that the desegregation of groups of households can be important in CGE analysis and the fact that the impact on income of policy simulations are often small in CGE models, we investigate the importance of othe choice of the functional form used to estimate the income distribution of groups of households. We compare six functional forms with parametric estimation and on a non-parametric method. Results show that no single form is more appropriate in all cases or groups of households. The characteristics of samples and subgroups play an important role and the choice shoudl be guided by the best fitting distribution.Computable general equilibrium models, estimation, personal income and wealth distribution, measurement and analysis of poverty

An ethnic polarization measure with an application to Ivory Coast data

In this paper, we suggest a framework for the analysis of ethnic polarization. This framework allows for the measurement of ethnic or religious polarization. We apply our measure to Ivory Coast and find a surprising result as the ethnic polarization decreased in years preceding the conflict in the country. However, further decomposition of the ethnic polarization index allows us to understand better how the variation in polarization may have induced this conflict.Ethnic polarization, Conflict, Ivory Coast

Can the removal of VAT Exemptions support the Poor? The Case of Niger

In order to have the public funds necessary for its development, Niger is examining the possibility of expanding its VAT tax base to exempted goods and basic food products. This proposal has prompted violent opposition leading to the question of the social impacts of taxation. The first micro-macro computable general equilibrium model of Niger's actual economy has been developed. This model allows analysis of the social impact and distributional analysis of the following VAT structures: a pure VAT structure, a structure maintaining certain exemptions, and a multiple-rate VAT structure. The model’s results shows that although restoring the VAT rate would be socially costly compared to the initial situation, the distributional impact of the VAT differs according to the system implemented in the country. Maintaining VAT exemptions in food crop agriculture sectors associated with a tax base expansion in the remaining sectors will increase public revenue while taking into account the national goal of poverty reduction. The net social impact of exoneration depends on the economic structure of the concerned sector. If the national goal is the end of exemption, the model shows that applying a pure VAT conforming to the theory is preferable in terms of economic growth whereas applying a reduced-rate on food crop agriculture lightens the social impact of the end of exemptions compared to a single rate.distributional analysis, Value Added Tax, exemptions, micro-simulation, Computable general equilibrium model, niger

The impact of infrastructure spending in Sub-Saharan Africa : a CGE modeling approach

The authors constructed a standard computable general equilibrium (CGE) model to explore the economic impact of increased spending on infrastructure in six African countries: Benin, Cameroon, Mali, Senegal, Tanzania, and Uganda. The basic elements of the model are drawn from EXTER, adjusted to accommodate infrastructure externalities. Seven sectors were considered: food crop agriculture, export agriculture, mining and oil, manufacturing, construction, private services, and public services. Four sets of simulations were conducted: baseline nonproductive investments, roads, electricity, and telecoms. For each set of simulations, five funding schemes were considered: reduced public expenditure; increased value-added taxes; increased import duties; funding from foreign aid; and increased income taxes. In general, the funding schemes had similar qualitative and quantitative effects on macro variables. For road and electricity investment, there were relatively large quantitative differences and some qualitative differences among funding schemes at the macro level. Sectoral analysis revealed further disparities among countries and investment types. The same type of investment with the same funding sources had varying effects depending on the economic structure of the sector in question. The authors find that few sectors are purely tradable or non-tradable, having instead variable degrees of openness to trade. If the current account needs to be balanced, funding investment through foreign aid produces the strongest sectoral effects because strong price and nominal exchange rate adjustments are needed to clear the current account balance. In addition, the capital/labor ratio of each sector plays an important role in determining its winners and losers.Economic Theory&Research,Debt Markets,Emerging Markets,Investment and Investment Climate,Public Sector Expenditure Policy

Measuring Poverty and Inequality in a Computable General Equilibrium Model

This paper aims to evaluate the relevance of different types of macroeconomic general equilibrium modelling for measuring the impact of economic policy shocks on the incidence of poverty and on the distribution of income. In the literature three approaches are identified. The first is based on a traditional form of the CGEM which specifies a large number of households. In this case, we can only observe inter group income inequalities. The next uses survey data to estimate the distribution function and average variations by group, which allows one to estimate the evolution of poverty. The third approach, which we present in detail, includes individual data directly in the general equilibrium model according to the principles of micro simulations. This treatment provides a more reliable picture of income distribution but is also more complex. Given this, we develop, within a co-ordinated statistical framework representing an archetypal economy, the three types of model described above. More precisely, this exercise allows us to break down the contribution of average income variations, of the poverty line, and of income distribution in the evolution of the main poverty indicators. The results obtained show the importance of intra group information and therefore the relevance of micro simulation exercises.General Equilibrium Models, Micro Simulation, Poverty, Inequality

Can the removal of VAT Exemptions support the Poor? The Case of Niger

In order to have the public funds necessary for its development, Niger is examining the possibility of expanding its VAT tax base to exempted goods and basic food products. This proposal has prompted violent opposition leading to the question of the social impacts of taxation. The first micro-macro computable general equilibrium model of Niger's actual economy has been developed. This model allows analysis of the social impact and distributional analysis of the following VAT structures: a pure VAT structure, a structure maintaining certain exemptions, and a multiple-rate VAT structure. The model's results shows that although restoring the VAT rate would be socially costly compared to the initial situation, the distributional impact of the VAT differs according to the system implemented in the country. Maintaining VAT exemptions in food crop agriculture sectors associated with a tax base expansion in the remaining sectors will increase public revenue while taking into account the national goal of poverty reduction. The net social impact of exoneration depends on the economic structure of the concerned sector. If the national goal is the end of exemption, the model shows that applying a pure VAT conforming to the theory is preferable in terms of economic growth whereas applying a reduced-rate on food crop agriculture lightens the social impact of the end of exemptions compared to a single rate.distributional analysis;Value Added Tax;exemptions;micro-simulation;Computable general equilibrium model;niger