Anne-Sophie Robilliard

Representative versus real households in the macro- economic modelling of inequality

To analyze issues of income distribution, most disaggregated macroeconomic models of the Computable General Equilibrium (CGE) type specify a few representative household groups (RHG) differentiated by their endowments of factors of production. To capture “within-group” inequality, it is often assumed, in addition, that each RHG represents an aggregation of households in which the distribution of relative income within each group follows an exogenously fixed statistical law. Analysis of changes in economic inequality in these models focuses on changes in inequality between RHGs. Empirically, however, analysis of household surveys indicates that changes in overall inequality are usually due at least as much to changes in within-group inequality as to changes in the between-group component. One way to overcome this weakness in the RHG specification is to use real households, as they are observed in standard household surveys, in CGE models designed to analyze distributional issues. In this integrated approach, the full heterogeneity of households, reflecting differences in factor endowments, labor supply, and consumption behavior, can be taken into account. With such a model, one could explore how household heterogeneity combines with market equilibrium mechanisms to produce more or less inequality in economic welfare as a consequence of shocks or policy changes. An integrated microsimulation-CGE model must be quite large and raises many issues of model specification and data reconciliation. This paper presents an alternative, top-down method for integrating micro-economic data on real households into modelling. It relies on a set of assumptions that yield a degree of separability between the macro, or CGE, part of the model and the micro-econometric modelling of income generation at the household level. This method is used to analyze the impact of a change in the foreign trade balance, and the resulting change in the equilibrium real exchange rate, in Indonesia (before the Asian financial crisis). A comparison with the standard RHG approach is provided. _________________________________ Ce papier presente une methodologie qui permet de s’affranchir de l’hypothese de l’agent representatif couramment utilisee dans les modeles d’Equilibre General Calculable (EGC). Il s’agit de remplacer les traditionnels agregats correspondant a d’hypothetiques « menages representatifs » par un echantillon de menages reels, tires d’une enquete budget-consommation. Cette approche permet de prendre en compte toute l’heterogeneite des menages etudies, non seulement economique mais egalement demographique, sociologique, etc. Ce type d’approche presente neanmoins l’inconvenient de la taille puisqu’il s’agit de manipuler des bases de donnees de plusieurs milliers d’individus. Ce papier presente un modele applique a l’Indonesie pour etudier l’impact social d’un choc d’epargne exterieure et l’evolution du taux de change reel d’equilibre qui resulte de ce choc (avant la crise financiere asiatique). Les resultats obtenus sont compares a ceux obtenus avec un modele plus “standard” a menages representatifs.

The social impact of a WTO agreement in Indonesia

Indonesia experienced rapid growth and the expansion of the formal financial sector during the last quarter of the 20th century. Although this tendency was reversed by the shock of the financial crisis that spread throughout Asia in 1997 and 1998, macroeconomic stability has since then been restored, and poverty has been reduced to pre-crisis levels. Poverty reduction remains nevertheless a critical challenge for Indonesia with over 110 million people (53 percent of the population) living on less than

Growth, distribution and poverty in Madagascar: Learning from a microsimulation model in a general equilibrium framework

2 a day. The objective of this study is to help identify ways in which the Doha Development Agenda might contribute to further poverty reduction in Indonesia. To provide a good technical basis for answering this question, the authors use an approach that combines a computable general equilibrium (CGE) model with a microsimulation model. This framework is designed to capture important channels through which macroeconomic shocks affect household incomes. It allows making recommendations on specific trade reform options as well as on complementary development policy reforms. The framework presented in this study generates detailed poverty outcomes of trade shocks. Given the magnitude of the shocks examined here and the structural features of the Indonesian economy, only the full liberalization scenario generates significant poverty changes. The authors examine their impact under alternative specifications of the functioning of labor markets. These alternative assumptions generate different results, all of which confirm that the impact of full liberalization on poverty would be beneficial, with wage and employment gains dominating the adverse food price changes that could hurt the poorest households. Two alternative tax replacement schemes are examined. While direct tax replacement appears to be more desirable in terms of efficiency gains and translates into higher poverty reduction, political and practical considerations could lead the Government of Indonesia to choose a replacement scheme through the adjustment of value-added tax rates across nonexempt sectors.