Implementing computable general equilibrium models: Data preparation, calibration, and replication∗

Henry, Komakech; Manning, R.A.; McCann, Ewen; Woodfield, Alan

doi:10.1080/00779958609544111

“…The general equilibrium studies take this process a step further by re-specifying national accounts data to be consistent with the conditions of general equilibrium. (see StHilaire and Whalley, 1983 and Henry et al, 1986).…”

Section: The Economic Meaning Of National Income Accountsmentioning

confidence: 99%

“…model. Information about the model can be found in Henry, Manning, McCann, Woodfield (1986) where the authors demonstrate the construction of a benchmark equilibrium data set (BEDS). BEDS are the adjustments which must be made when there are discrepancies between official data and the theoretical restrictions of a given c.g.e.…”

mentioning

confidence: 99%

Evaluating the budget's distributive influence on household incomes

Snively¹

0

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<p>Many budget measures have been introduced by governments with the stated aim of transferring resources to particular groups - in general, the groups which are seen to receive lower incomes. An evaluative method is required to assess the extent to which resources are actually redistributed to households by the budget. This thesis suggests a taxonomy for assessing whether a measure of household income that takes account of central government budget activities is distributed differently from household earnings (market income). The taxonomy for evaluating the budget's distributive influence has four stages. Each stage progresses from observable household market income data to a more comprehensive income measure. Stage One is basically an accounting concept. Household market income is compared with an income measure which takes account of those central government budget transactions which have an obvious or direct effect on the sources and uses of household income. Stage Two is similar to studies of the influence of the budget on income distribution, such as those by Gillespie and Musgrave, which are referred to as quantitative studies. Quantitative studies are not based on structured models of economic activity, but use the results of other incidence analysis to approximate the economic effects of budget receipts and expenditures on household incomes. Stages Three and Four require structured general equilibrium models to take consistent account of the behavioural relationships important to the analysis of the economic effects of the budget by household income. The Harberger-Mieskowki-McLure (HMM) two-sector general equilibrium models specify both factor and product price changes, incorporating theories about the short-run macroeconomic effects of budget measures. Conclusions about budget incidence based on the HMM approach, however, relate to aggregate factor (capital and labour) income. Multi-sector models pioneered by Shoven, Whalley and Fullerton focus on the analysis of tax incidence by household income groups. Given the current state of the art, it is not possible to analyse the distributional effects of the entire budget on household income distribution using general equilibrium models. This thesis provides a clearer definition of some of the issues involved. A quantitative study of the money-income effects of the 1981/82 government budget is carried out as part of this thesis. The government budget is defined as the national income account of the central government's current income and outlays. Work by the New Zealand Department of Statistics based on a tax modelling system called ASSET provides the foundation for manipulating the massive data requirements of this thesis topic. The results are expressed by 10 household income groups (deciles) and 10 household types and represents the entire population residing in private dwellings. A major contribution of this thesis is that it analyses the distribution of government expenditures by household income and household type. It is found that the 1981/82 budget does redistribute money-income from households in the higher income groups to those in the lower-income groups. The personal income tax is shown to be the most important redistributive force, based on the assumption that households' actual tax payments are the same as their statutory liability for the tax. The household types which are estimated to receive the greatest net benefit from the 1981/82 central government non-market budget are one-adult and two-adult national-superannuitant household. According to the results, government expenditures tend, on average, to be consumed in greater proportion by childless household than by households with children. Comparison of the results using the Stage One and Stage Two approaches, as well as a rough approximation of a Stage Three initial income base, suggests that the more theoretically comprehensive the evaluative approach, the less redistributive is the budget. Piggott (1980b) has shown that a feature of the SWF general equilibrium models that makes them attractive for policymakers interested in social policy is that the model can be used to evaluate both the distributional and efficiency consequences of a budget change in terms of household incomes. This, and the above comparison, are powerful arguments in favour of further development of SWF models so that the incidence of the budget can be assessed in a theoretically-consistent fashion.</p>

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“…The general equilibrium studies take this process a step further by re-specifying national accounts data to be consistent with the conditions of general equilibrium. (see StHilaire and Whalley, 1983 and Henry et al, 1986).…”

Section: The Economic Meaning Of National Income Accountsmentioning

confidence: 99%

“…model. Information about the model can be found in Henry, Manning, McCann, Woodfield (1986) where the authors demonstrate the construction of a benchmark equilibrium data set (BEDS). BEDS are the adjustments which must be made when there are discrepancies between official data and the theoretical restrictions of a given c.g.e.…”

mentioning

confidence: 99%

Evaluating the budget's distributive influence on household incomes

Snively¹

1

0

View full text Add to dashboard Cite

<p>Many budget measures have been introduced by governments with the stated aim of transferring resources to particular groups - in general, the groups which are seen to receive lower incomes. An evaluative method is required to assess the extent to which resources are actually redistributed to households by the budget. This thesis suggests a taxonomy for assessing whether a measure of household income that takes account of central government budget activities is distributed differently from household earnings (market income). The taxonomy for evaluating the budget's distributive influence has four stages. Each stage progresses from observable household market income data to a more comprehensive income measure. Stage One is basically an accounting concept. Household market income is compared with an income measure which takes account of those central government budget transactions which have an obvious or direct effect on the sources and uses of household income. Stage Two is similar to studies of the influence of the budget on income distribution, such as those by Gillespie and Musgrave, which are referred to as quantitative studies. Quantitative studies are not based on structured models of economic activity, but use the results of other incidence analysis to approximate the economic effects of budget receipts and expenditures on household incomes. Stages Three and Four require structured general equilibrium models to take consistent account of the behavioural relationships important to the analysis of the economic effects of the budget by household income. The Harberger-Mieskowki-McLure (HMM) two-sector general equilibrium models specify both factor and product price changes, incorporating theories about the short-run macroeconomic effects of budget measures. Conclusions about budget incidence based on the HMM approach, however, relate to aggregate factor (capital and labour) income. Multi-sector models pioneered by Shoven, Whalley and Fullerton focus on the analysis of tax incidence by household income groups. Given the current state of the art, it is not possible to analyse the distributional effects of the entire budget on household income distribution using general equilibrium models. This thesis provides a clearer definition of some of the issues involved. A quantitative study of the money-income effects of the 1981/82 government budget is carried out as part of this thesis. The government budget is defined as the national income account of the central government's current income and outlays. Work by the New Zealand Department of Statistics based on a tax modelling system called ASSET provides the foundation for manipulating the massive data requirements of this thesis topic. The results are expressed by 10 household income groups (deciles) and 10 household types and represents the entire population residing in private dwellings. A major contribution of this thesis is that it analyses the distribution of government expenditures by household income and household type. It is found that the 1981/82 budget does redistribute money-income from households in the higher income groups to those in the lower-income groups. The personal income tax is shown to be the most important redistributive force, based on the assumption that households' actual tax payments are the same as their statutory liability for the tax. The household types which are estimated to receive the greatest net benefit from the 1981/82 central government non-market budget are one-adult and two-adult national-superannuitant household. According to the results, government expenditures tend, on average, to be consumed in greater proportion by childless household than by households with children. Comparison of the results using the Stage One and Stage Two approaches, as well as a rough approximation of a Stage Three initial income base, suggests that the more theoretically comprehensive the evaluative approach, the less redistributive is the budget. Piggott (1980b) has shown that a feature of the SWF general equilibrium models that makes them attractive for policymakers interested in social policy is that the model can be used to evaluate both the distributional and efficiency consequences of a budget change in terms of household incomes. This, and the above comparison, are powerful arguments in favour of further development of SWF models so that the incidence of the budget can be assessed in a theoretically-consistent fashion.</p>

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