Luc Savard

Poverty and Inequality Analysis within a CGE Framework: A Comparative Analysis of the Representative Agent and Microsimulation Approaches

Two approaches have emerged in the use of CGE models in poverty and income distribution analysis: the traditional representative agent and the microsimulation approach using a large number of households to capture more heterogeneity. This article uses three simple CGE models with representative agent and microsimulation approaches to verify whether the two methods produce compatible results. The use of microsimulation does not appear to lead to different results or contribute significant value-added in impact analysis at the macroeconomic and sectoral levels. However, when poverty and inequality are the focus, the results produced by the two approaches are inverted, revealing that the choice of approach is crucial when the objective of the analysis relates to poverty and inequality.

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.

A Macro–Micro Analysis of the Effects of Electricity Reform in Senegal on Poverty and Distribution

Abstract This paper uses a computable general equilibrium (CGE) macro–micro model to explore the distributional effects of price reform in the electricity sector of Senegal. In the first part of the paper we analyse the distribution of electricity in Senegal by income quintiles, between 1995 and 2001. The analysis demonstrates that poor and rural households are not the main beneficiaries of the expanded network. The results of the CGE model show that direct price effects are weaker than general equilibrium effects on poverty and inequality. Moreover, compensatory policies tested can help attenuate some adverse effects.

The Impact of Infrastructure Spending in Sub-Saharan Africa: A Cge Modeling Approach

In this paper we construct an archetype CGE model and apply it to six sub-Saharan African countries to explore the impact of scaling up infrastructure in African countries. As part of the debate on the importance of scaling up infrastructure to stimulate growth and provide a push to African economies, some analysts have raised concerns on providing massive financing for the construction of these infrastructures as the process can create major distortion in the economies and have a negative impact by creating Dutch disease symptoms (Adam and Bevan 2006). This study aims to provide some insight into this debate. It draws from the infrastructure productivity literature to postulate positive productive externalities of new infrastructure and Fay and Yepes (2003) for operating cost associated with new infrastructure. We compare various infrastructure investment funded with different fiscal tools. These investments scenarios are compared to non productive investment that can be interpreted as a business as usual scenario. Our results show that increase in infrastructure investment does produce slight Dutch disease effects but the negative impacts are strongly dependent on the type of investments performed and type of financing scheme used. Moreover, the growth effects we introduced contribute to attenuate the negative effects.

The Labor Market in Computable General Equilibrium Models

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

The Intra-country Distributional Impact of Policies to Fight Climate Change: A Survey

Abstract In this paper we present a survey of distributional impact analysis of environmental policies with emphasis on taxes envisaged or implemented to reduce greenhouse gas emissions (GHG). These policies usually aim at reducing GHG directly or indirectly. However, they can produce important changes in factor allocation, relative prices in specific countries as well as on world markets when adopted by a large number of countries. Changes in welfare can be important for vulnerable groups of population in developing countries. This survey reviews the evidence on the incidence of these policies. In the process, it shows that the computable general equilibrium (CGE) microsimulation approach has not been fully exploited in the context.

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.

The Gini multi-decomposition and the role of Gini's transvariation: application to partial trade liberalization in the Philippines

This article proposes a unified technique of the Gini decomposition. The Gini multi-decomposition is a combination of the income source decomposition and the subgroup decomposition. This technique is applied on reference situation and simulated scenarios for partial trade liberalisation in Philippines, and is extended to different orderings to capture a wide range of between-group indicators. We simulate variations in income source distributions for seven educational groups in the Philippines, in order to measure the inequality variations between a reference situation and a post simulation one with positive externalities due to public expenditures on the private sector productivity.

A comparative analysis of funding schemes for public infrastructure spending in Quebec

The economic literature has been investigating the positive relation between public infrastructure spending and the productivity of the private sector since Munnell (1992). We have introduced this relationship into a recursive dynamic computable general equilibrium model of the Quebec economy to investigate various funding schemes to scale up infrastructure spending in the province. We draw our assumptions from Estache et al. (2010) combined with sectoral elasticity parameters. We conduct a comparative analysis where the funding comes from debt alone, and debt with sales tax, income tax and business tax. Our main finding is that the income tax seems to produce the most positive effects and the businesses tax the most negative effects, though differences are small.

Groundnut Sector Liberalization in Senegal: A Multi-household CGE Analysis

In Senegal, the poverty reduction strategy is taking place in a context where international trade liberalization impacts the agricultural sector as a whole, and the groundnut sector in particular. Against this backdrop, we have developed a micro-simulated multiple-household computable general equilibrium model similar to the one proposed by Decaluwé et al. (1999b, How to Measure Poverty and Inequfality in General Equilibrium Framework, CREFA Working Paper No. 9920, Université Laval, Québec). Five simulations have been carried out in order to assess their impact on several levels—namely the macroeconomic, sector-based and household levels. The first two simulations concern tariff reforms, whereas the last three examine the external shocks resulting from a change in export prices on the world market (namely, for groundnuts and groundnut oil). The point of these simulations is to assess how the liberalization of the groundnut industry and the privatization of the Société Nationale de Commercialisation des Oléagineux du Sénégal—two major elements in the Framework Agreement—may impact households, and thus to see in what ways these economic reforms relate to poverty and income distribution. The results show that reducing the special tax on edible oils is positive in terms of poverty effects and the reduction of world prices of groundnut has relatively strong negative effects on poor households if farmers are not protected via a fixed price.