Maurizio Ciaschini

Scale and structure in economic modelling

Abstract In this paper an attempt is made to put together, within the same model, the supply and the demand side of the economic process. This is done by integrating the progress attained in two fields which have traditionally been considered separate: the input-output approach and the macroeconometric final demand approach. The composition of each traditional macroeconomic variable, determined within the model, is analysed into the functional headings which are peculiar for each variable (family budgets headings for personal consumption expenditures, investing sectors for investments, I-O sectors for output and so on). We can then identify for each variable a scale component - absolute level of the aggregated variable - and a structure component - its inner composition - which are mutually consistent. Two types of applications of the same model are then compared: simulation, where the parametric set is used to obtain the dynamic path of a specific scenario; and integrated impact multiplier analysis where scale and structure effects are evaluated with reference to all the potential behaviour of the system.

Multisectoral structures and policy design

In this article, an attempt is made to identify a convenient structure of a policy variable, the final demand vector, through the use of a multisectoral model. The method used relies on a specific spectral decomposition that allows for the quantification of the scale-effect of each structure that the policy variable can assume on the structures of the objective variable, the total output vector. This quantification is of aggregate type, since each scalar obtained is valid for all the sectoral components of both the policy variable and the objective variable. But, more relevant, they are consistent with the multisectoral feature of the model, overcoming the objections put forward by the theory of aggregation. In fact, the aggregation theory states that if we aggregate sectors, we obtain a new model with different structural properties, while, in our case, the aggregate scalars that we obtain for each structure are perfectly consistent with the original model. We call these scalars macroeconomic multipliers since they say how many times the modulus of the multisectoral policy variable is multiplied to obtain the modulus of the multisectoral objective variable. Once the structures and the associated macro multipliers are identified, the policy maker can have a complete picture of the economic structure of the objective variable that can be attained and determine a convenient structure of the policy variable choosing either one structure or a combination of the structures identified.

A CONVENIENT MULTISECTORAL POLICY CONTROL FOR ICT IN THE US ECONOMY

Through the application of the Macro Multiplier (MM) approach on an Input–Output matrix for US economy in year 2005, the paper identifies the ‘convenient’ structure of a policy control on final demand, oriented to a particular policy objective. The approach quantifies a set of aggregated scale effects, called MM, and the associated structures of both policy and objective variables. In this way the policy maker can both get a complete picture of the patterns of the objective that can be attained and determine a ‘convenient’ structure of the policy variable that compels the model towards those patterns.

The Economic Impact of the Green Certificate Market Through the Macro Multiplier Approach

In the last decade, as many other European countries, the Italian Government adopted several reforms in order to increase the use of Renewable Energy Sources (RES). The liberalization of the electricity market that represents one of these reforms aims to reach environmental benefits from the substitution of fossil fuel with renewable sources. The Italian Green Certificate market was introduced in 2002 in order to accomplish this objective and represents a mechanism where a quota of renewable electricity is imposed to suppliers in proportion to their sales. The electricity industries are obliged to meet this condition by producing the quantity of renewable electricity by means of a change in their production process, otherwise they must buy a number of certificates corresponding to the quota. This mechanism changes the importance of the electricity industry first in promoting climate protection, then in terms of the impact on the economy as a whole. A policy aimed to develop the market of green certificates may lead to environmental improvement by switching the energy production process to renewable resources. But above all an increase in demand for green certificates, resulting from a reform on the quota of renewable electricity, can generate positive change in all components of the industrial production. For this purpose, the paper aims to quantify the economic impact of a reform on Green Certificate market for the Italian system by means of the Macro Multiplier (MM) approach. The analysis is performed through the Hybrid Input-Output (I-O) model that allows expressing the energy ows in physical terms (GWh) while all other ows are expressed in monetary terms (€). Moreover, through the singular value decomposition of the inverse matrix of the model, which reveals the set of key structures of the exogenous change of final demand, we identify the appropriate key structure able to obtain both the expected positive total output change and the increase of electricity production from RES.

Environmental tax and regional government consumption expenditure in a fiscal federalism system

The increasing attention to climate changes have led national Governments to design environmental tax policies able to face environmental problems and their associated economic consequences like as a negative change of GDP. The environmental taxation in particular is considered a powerful instrument of pollution control. More important, it provides public revenue that can be recycled at local level in order to attain the regional double dividend in a fiscal federalism framework. In this respect, we use a Computable General Equilibrium (CGE) model with imperfect labour market, to assess the regional effects of an environmental fiscal reform designed with the aim of reducing the CO2 emissions in a fiscal federalism setting. In particular, we introduce a local green tax on commodities output with a progressive structure. The tax burden depends on the commodity polluting power. According to fiscal federalism principles the tax revenue is collected by the local Government and it is entirely recycled to finance the local consumption expenditure. The application is done on a bi-regional Social Accounting Matrix for Italy and the results highlights the distributional effects of the reform on macroeconomic variables into the bi-regional income circular flow.

Education services and reallocation of government expenditure

Expenditure on education, beyond being a source of short run changes in output and GDP levels, can contribute to the accumulation of human capital, which is of critical importance in determining a country productive capacity and productivity. General government indicators reveal that in 2010 U.S. National defense expenditure as a percentage of GDP is three times higher than the OECD average and that only Israel exhibits a higher value. Moreover, National defense expenditure accounts for sixteen percent of total outlays in the 2014 proposed U.S. Federal budget. Recent studies on the U.S. economy suggest that a relocation of Federal funds from investments in National defense to the education system can have an overall positive or recessive impact on output and GDP levels depending on the way in which the funds reinvested are distributed between capital and current expenditure. Furthermore, short run effects can be accompanied by medium and long run benefits due to the enhanced productivity stemming from efficient expenditure on education. The aim of this paper is to design and evaluate balanced budget policies that foster the U.S. education system by relocating Federal funds from investments in National defense to the education system. National defense expenditure in capital account is reduced by one percent over a period of five years. The education policies proposed differ in the way in which saved funds are reallocated. Funds can be expended in capital or current account, can be partitioned between public and private education industries and between market and non-market education services. The research first focuses on changes in income of the institutional sectors, then on output changes, in aggregate and by commodity. Finally, on the basis of the changes in the production of human capital related services, the increase in the stock of human capital is estimated by a cost-based approach. A suitable framework for conducting this kind of analysis is a dynamic extended multisectoral model where final consumption depends on the institutional sectors income level of the previous period and investments react to institutional sectors income changes. While traditional multisectoral analysis is purely static and doesn’t deal with the complexity of evolving systems, the introduction of structural relationships that link variables belonging to different time periods allows for multisectoral economic dynamics. The model proposed is based on the Social Accounting Matrix (SAM) approach and the economic process is represented as a circular flow. In this framework it is possible to account for direct, indirect and induced effects produced by the policy proposed.

CO2 emissions and value added change: assessing the trade-off through the macro multiplier approach

Recently, political and scientific debate is strongly focused on issues questioning the economic sustainability of environmental policies at regional level. Following European directives and protocols and in accordance with the principles of sustainable development, the interventions designed by policy makers are required to aim at restructuring the final emissions. In this paper an effort is made to assess a new structure for the final demand which would be able to achieve a composite task: the economic sustainability and the environmental improvement. In this respect, the regional Social Accounting Matrix (SAM), referred to a typical region of the Mediterranean area, the Sardinia, will be integrated with the environmental accounting scheme in order to develop the regional multisectoral extended model. The resulting inverse matrix will be used to identify which composition of the final demand (policy control variable) is consistent with the complex emissions together with a positive variation of the aggregate total output (policy target variable). For this purpose the Macro Multipliers approach, through the use of a bidimensional decision-making index, will allow us to identify the convenient structures for both economic and environmental target and assessing the expected negative trade-off.

The Third Age in the National Health System: A Proposal for Increasing the Spending Effectiveness in Health Care for the Elderly

The allocation among Institutional Sectors of Health Care Expenditure for the Elderly can be designed in a way that new processes can be activated that stimulate total output and overall employment. The impacts of these processes as they emerge from several policy scenarios in all phases of income circular flow within the economic system, can be determined with reference to the model of computable general equilibrium (CGE) calibrated on the Social Accounting Matrix (SAM) data set. The HCEE is placed within the economic flows of a bi-regional SAM for Italian economy which provides the data set for a CGE model where the hypothesis of involuntary unemployment is also considered. Two policy scenarios are then simulated to evaluate the impact of the policy reform in HCEE on total output and unemployment. Under the first scenario the Regional Government reduces the expenditure in integrated home care assistance (ADI) in order to directly increase the demand of private residential health care (ARA) services; under the second scenario the Regional Government transfers the resources saved by reducing ADI to the Households in order to stimulate their demand of ARA.

The Role of ICT in the Italian Health Care System

The size of the Italian expenditure for the health care on Gross Domestic Product (GDP) and on total public expenditure, is in line with those of the major industrialized countries, and somewhat lower than the European average. The Italian healthcare sector does not simply face a contraction of the expenditure: in effect, it should be highlighted that Italy currently does not spend “a lot” and, above all, invests “little” in the mentioned sector. Nevertheless, the health sector can be a very important flywheel for the economic recovery, provided that a lot of attention is paid, and the best resources are invested. In this work, the authors intend developing an analysis of the desirability of investment on Information and Communication Technologies (ICT) in the health sector, and the consequent compatibility with current expenditure, by identifying at the outset the channels multipliers related to the resources at present allocated to the current health expenditure and capital account. For this analysis, two different simulation scenarios have been considered: in the first, an increase in Health services demand by Government has been studied, while in the second, an increase in final demand of Health services by Households has been considered.

Investments and Sustainability of Public Expenditure in the Health Sector

The impact of the Italian expenditure for the health care on Gross Domestic Product (GDP) and on total public expenditure, is in line with those of the major industrialized countries, and somewhat lower than the European average. The issue of the Italian health sector is not simply related to the contraction of the expenditure: in effect, it should be highlighted that Italy currently does not spend “a lot” and, above all, invests “little” in the mentioned sector. Nevertheless, the health sector can be a very important flywheel for the economic recovery but, in order to make this possible, it is necessary to pay a lot of attention, and to invest the best resources. In this work, the authors intend to develop an analysis of the desirability of investment on Information and Communication Technologies (ICT) in the health sector, and the consequent compatibility with current expenditure, by identifying at the outset the channels multipliers related to the resources at present allocated to the current health expenditure and capital account.