nep-cmp New Economics Papers
on Computational Economics
Issue of 2005‒02‒13
twenty papers chosen by
Stan Miles
York University

  1. On the design of Artificial Stockmarkets By Boer-Sorban, K.; Bruin, A. de; Kaymak, U.
  2. Cooperative Models in Action: Simulation of a Nash-Bargaining Model of Household Labor Supply with Taxation By Bargain, Olivier; Moreau, Nicolas
  3. Bayesian Econometrics By Poirier, Dale J; Tobias, Justin
  4. Path dependent option pricing: the path integral partial averaging method By Andrew Matacz
  5. Microsimulations in the Presence of Heterogeneity By Constantijn W.A. Panis
  6. Poverty Alleviation Policies in Madagascar: a Micro-Macro Simulation Model By Denis Cogneau; Anne-Sophie Robilliard
  7. Personal Reemployment Accounts: Simulations for Planning Implementation By Christopher J. O'Leary; Randall W. Eberts
  8. Consumption and population age structure By Solveig K. Erlandsen; Ragnar Nymoen
  9. GM Food Crop Technology: Implications For Sub-Saharan Africa By Anderson, Kym; Jackson, Lee Ann
  10. EU Enlargement and Beyond: A Simulation Study on EU and Russia Integration By Sulamaa, Pekka; Widgrén, Mika
  11. Optimal Taxation in an RBC Model: A Linear-Quadratic Approach By Benigno, Pierpaolo; Woodford, Michael
  12. Low-Skilled Unemployment, Capital-Skill Complementarity and Embodied Technical Progress By Eva, MORENO-GALBIS; Henri R., SNEESSENS
  13. A two-stage stochastic integer programming approach . By Laureano F. Escudero Bueno; María Araceli Garín Martín; María Merino Maestre; Gloria Pérez Sainz de Rozas
  14. Prospects for growth and poverty reduction i n Zambia, 2001-2015 By Lofgren, Hans; Thurlow, James; Robinson, Sherman
  15. Assessing the spatial distribution of crop production using a cross-entropy method By You, Liangzhi; Wood, Stanley
  16. Retirement Effects of Proposals by the President’s Commission to Strengthen Social Security By Alan L. Gustman; Thomas L. Steinmeier
  17. The Cost of US Pharmaceutical Price Reduction: A Financial Simulation Model of R&D By Thomas A. Abbott; John A. Vernon
  18. Is it fair to “make work pay”? By R. I. LUTTENS; E. OOGHE
  19. The Social Cost of Government Spending in an Economy with Large Tax Distortions. A CGE Decomposition for Norway By Erling Holmøy and Birger Strøm
  20. The public investment rule in a simple endogenous endogenous growth model with public capital: active or pasive? By Gustavo A. Marrero

  1. By: Boer-Sorban, K.; Bruin, A. de; Kaymak, U. (Erasmus Research Institute of Management (ERIM), Erasmus University Rotterdam)
    Abstract: Artificial stock markets are designed with the aim to study and understand market dynamics by representing (part of) real stock markets. Since there is a large variety of real stock markets with several partially observable elements and hidden processes, artificial markets differ regarding their structure and implementation. In this paper we analyze to what degree current artificial stock markets reflect the workings of real stock markets. In order to conduct this analysis we set up a list of factors which influence market dynamics and are as a consequence important to consider for designing market models. We differentiate two categories of factors: general, well-defined aspects that characterize the organization of a market and hidden aspects that characterize the functioning of the markets and the behaviour of the traders.
    Keywords: market microstructure;financial markets;agent-based computational economics;artificial stock markets;uncertainty modeling;
    Date: 2005–02–01
    URL: http://d.repec.org/n?u=RePEc:dgr:eureri:30002030&r=cmp
  2. By: Bargain, Olivier (IZA Bonn); Moreau, Nicolas (GREMAQ and LIRHE, University of Toulouse 1)
    Abstract: Several theoretical contributions, starting with McElroy and Horney (1981) and Manser and Brown (1980), have suggested to model household behavior as a Nash-bargaining game. Since then, very few attempts have been made to operationalize cooperative models of household labor supply for policy analysis. In this paper, we implement a Nash-bargaining model with external threat points (divorce) into the microsimulation of tax policy reforms in France. Following the suggestion of McElroy (1990) to achieve identification, we assume that the observation of single individuals can be used to predict outside options. Individual preferences in couples are allowed to display caring between spouses and are simulated in a way which guarantee consistency with the Nash bargaining setting, regularity conditions and observed behaviors. An extensive sensitivity analysis is provided in order to examine the various implications from using the cooperative model for tax policy analysis and the likely role of taxation on intra-household negotiation.
    Keywords: collective model, Nash-bargaining model, intrahousehold allocation, household labor supply, tax reform, microsimulation
    JEL: C25 C52 C71 D11 D12 H31 J22
    Date: 2005–01
    URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1480&r=cmp
  3. By: Poirier, Dale J; Tobias, Justin
    Abstract: Basic principles of Bayesian statistics and econometrics are reviewed. The topics covered include point and interval estimation, hypothesis testing, prediction, model building and choice of prior. We also review in very general terms recent advances in computational methods and illustrate the use of these techniques with an application.
    Date: 2005–02–08
    URL: http://d.repec.org/n?u=RePEc:isu:genres:12245&r=cmp
  4. By: Andrew Matacz (Science & Finance, Capital Fund Management)
    Abstract: In this paper I develop a new computational method for pricing path dependent options. Using the path integral representation of the option price, I show that in general it is possible to perform analytically a partial averaging over the underlying risk-neutral diffusion process. This result greatly eases the computational burden placed on the subsequent numerical evaluation. For short-medium term options it leads to a general approximation formula that only requires the evaluation of a one dimensional integral. I illustrate the application of the method to Asian options and occupation time derivatives.
    JEL: G10
    URL: http://d.repec.org/n?u=RePEc:sfi:sfiwpa:500034&r=cmp
  5. By: Constantijn W.A. Panis (RAND)
    Abstract: This paper develops a method that improves researchers’ ability to account for behavioral responses to policy change in microsimulation models. Current microsimulation models are relatively simple, in part because of the technical difficulty of accounting for unobserved heterogeneity. This is all the more problematic because data constraints typically force researchers to limit their forecasting models to relatively few, mostly time-invariant explanatory covariates, so that much of the variation across individuals is unobserved. Furthermore, failure to account for unobservables often leads to biased estimates of structural parameters, which are critically important for measuring behavioral responses. This paper develops a theoretical approach to incorporate (univariate and multivariate) unobserved heterogeneity into microsimulation models; illustrates computer algorithms to efficiently implement heterogeneity in continuous and limited dependent models; and evaluates the importance of unobserved heterogeneity by conducting Monte Carlo simulations.
    Date: 2003–05
    URL: http://d.repec.org/n?u=RePEc:mrr:papers:wp048&r=cmp
  6. By: Denis Cogneau (DIAL (Développement, Institutions & Analyses de Long terme)); Anne-Sophie Robilliard (DIAL (Développement, Institutions & Analyses de Long terme))
    Abstract: We present the framework of a macro-micro simulation model for the study of the impact of economic policies on income distribution and monetary poverty in Madagascar. Modelling options and choices are discussed for the micro-economic module and for the macro-micro linkages. Econometric estimations and calibration of the occupational choice / labor income part of the micro-economic module are presented and commented. Some illustrative simulations of poverty alleviation schemes are also implemented and analyzed. Nous présentons le cadre d’un modèle de simulation macro-micro pour l’étude de l’impact des politiques économiques sur la distribution du revenu et la pauvreté monétaire à Madagascar. Les options et les choix de modélisation sont discutés pour le module micro-économique et pour les liaisons micro-macro. Les estimations économétriques et la calibration du modèle de « choix » d’occupation et de revenu du travail sont présentées et commentées. Des simulations illustratives de stratégies de réduction de la pauvreté sont aussi mises en oeuvre et analysées.
    Keywords: Modélisation économique, micro-simulation, distribution du revenu, réduction de la pauvreté, choix d’occupation, dualisme du marché du travail, Madagascar, Economic Modelling, Micro-Simulation, Income distribution, Poverty Reduction, Dual, labor Markets, Occupational Choice,
    JEL: C51 D31 D58 J24 O15 O21
    Date: 2004–11
    URL: http://d.repec.org/n?u=RePEc:dia:wpaper:dt200411&r=cmp
  7. By: Christopher J. O'Leary (W.E. Upjohn Institute for Employment Research); Randall W. Eberts (W.E. Upjohn Institute for Employment Research)
    Abstract: The proposed Back to Work Incentive Act of 2003 recommended personal reemployment accounts (PRAs) that would provide each eligible unemployment insurance (UI) claimant with a special account of up to $3,000 to finance reemployment activities. Account funds could be used to purchase intensive, supportive, and job training services. Any funds remaining in the PRA could be paid as a cash bonus for reemployment within 13 weeks, or drawn as extended income maintenance for exhaustees of regular UI benefits. Personal reemployment account offers would be targeted to UI beneficiaries most likely to exhaust their UI entitlements using state Worker Profiling and Reemployment Services (WPRS) models. The draft legislation called for a budget of $3.6 billion for PRAs, with the money to be committed over a two-year period. This report provides a simulation analysis of questions relevant to implementation of PRAs by states. The analysis is done using data for the state of Georgia. Simulations rely on recent patterns of intensive, supportive, and training services use. Simulations for alternative rules setting the PRA amount and varying behavioral responses are examined. Like the legislative proposal, simulated PRA offers are targeted using WPRS models. The key question examined is, how many PRA offers can a state make given a fixed budget? Proposed and alternative rules for substate budget allocation are also examined. The framework presented in this paper allows the exploration of several behavioral responses to incentives created by the PRA.
    Keywords: profiling, worker, WPRS, personal, reemploymt, accounts, PRA, Upjohn, Eberts, O'Leary
    JEL: J65 J68 H43
    URL: http://d.repec.org/n?u=RePEc:upj:weupjo:04-110&r=cmp
  8. By: Solveig K. Erlandsen (Norges Bank); Ragnar Nymoen (University of Oslo)
    Abstract: In this paper the e ects on aggregate consumption of changes in the age distribution of the population are analysed empirically. Economic theories predict that age influences individuals’ saving and consumption behaviour. Despite this, age structure e ects are rarely controlled for in empirical consumption functions. Our findings suggest that they should. By analysing Norwegian quarterly time series data we find that changes in the age distribution of the population have significant and life cycle consistent e ects on aggregate consumption. Furthermore, controlling for age structure effects stabilizes the other parameters of the consumption function and reveals significant real interest rate effects. Simulation experiments show that the numerical effect on the savings rate of age structure changes is substantial when the indirect effects via wealth and income are accounted for.
    Keywords: Consumption, demography, savings, time series models, cointegration
    JEL: C51 C53 E21 J10
    Date: 2004–11–26
    URL: http://d.repec.org/n?u=RePEc:bno:worpap:2004_22&r=cmp
  9. By: Anderson, Kym; Jackson, Lee Ann
    Abstract: The first generation of genetically modified (GM) crop varieties sought to increase farmer profitability through cost reductions or higher yields. The next generation of GM food research is focusing also on breeding for attributes of interest to consumers, beginning with ‘golden rice’, which has been genetically engineered to contain a higher level of vitamin A and thereby boost the health of unskilled labourers in developing countries. This Paper analyses empirically the potential economic effects of adopting both types of innovation in Sub-Saharan Africa (SSA). It does so using the global economy-wide computable general equilibrium model known as GTAP. The results suggest the welfare gains are potentially very large, especially from golden rice, and that those benefits are diminished only slightly by the presence of the European Union’s current ban on imports of GM foods. In particular, if SSA countries impose bans on GM crop imports in an attempt to maintain access to EU markets for non-GM products, the loss to domestic consumers due to that protectionism boost to SSA farmers is far more than the small gain in terms of greater market access to the EU.
    Keywords: biotechnology; computable general equilibrium; GMOs; regulation; sub-saharan africa; trade policy
    JEL: C68 D58 F13 O30 Q17 Q18
    Date: 2004–07
    URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:4490&r=cmp
  10. By: Sulamaa, Pekka; Widgrén, Mika
    Abstract: This Paper examines the economic effects of the opening of the former Soviet Union. The analysis carried out in the Paper is two-fold. First we simulate the impact of the eastern enlargement of the EU and, second, we analyse how deeper integration between the EU and Russia contributes to this. The analysis is carried out with GTAP computable general equilibrium model. We find that there is a trade-off between the two roads of European integration arrangements. Eastern enlargement seems, even in its very deep form, to be beneficial for all EU regions without causing substantial welfare losses outside the Union. EU-Russia integration, on the other hand, has a different impact. To be beneficial for Russia, free trade between the EU and Russia requires improved productivity in the latter, which may be due to better institutions or increased FDI. This might make the negotiations of the agreement cumbersome and, if agreed, its implementation difficult.
    Keywords: european integration; GTAP model; trade
    JEL: F14 F15 F17
    Date: 2004–10
    URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:4720&r=cmp
  11. By: Benigno, Pierpaolo; Woodford, Michael
    Abstract: We reconsider the optimal taxation of income from labour and capital in the stochastic growth model analysed by Chari et al. (1994, 1995), but using a linear-quadratic (LQ) approximation to derive a log-linear approximation to the optimal policy rules. The example illustrates how inaccurate ‘naïve’ LQ approximation - in which the quadratic objective is obtained from a simple Taylor expansion of the utility function of the representative household - can be, but also shows how a correct LQ approximation can be obtained, which will provide a correct local approximation to the optimal policy rules in the case of small enough shocks. We also consider the numerical accuracy of the LQ approximation in the case of shocks of the size assumed in the calibration of Chari et al. We find that the correct LQ approximation yields results that are quite accurate, and similar in most respects to the results obtained by Chari et al. using a more computationally intensive numerical method.
    Keywords: LQ solution; optimal taxation
    JEL: C61 E62
    Date: 2004–11
    URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:4764&r=cmp
  12. By: Eva, MORENO-GALBIS (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)); Henri R., SNEESSENS (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) (Belgium) and Université Catholique de Lille (France))
    Abstract: We construct an intertemporal general equilibrium model with two types of jobs and two types of workers. We allow for job competition between high- and low-skilled segment of the labour market and for on-the-job search. Matching processes are represented by matching functions à la Pissarides. Workers search intensities are endogenous. Biased technological change is introduced via embodied technical progress and a capital-skill complementarity. The model is calibrated and simulated to evaluate the impact of various types of shocks. The model reproduces quite well the unemployment rate changes and the relative wage stability observed over the last two decades. It suggests strong interactions between biased technological change, discouragement effects and job competition.
    Keywords: Skill mismatch; equilibrium unemployment; ladder effect; macro dynamics
    JEL: E24 J21 J23
    Date: 2004–09–15
    URL: http://d.repec.org/n?u=RePEc:ctl:louvir:2004025&r=cmp
  13. By: Laureano F. Escudero Bueno (Centro de I.O. (Universidad Miguel Hernández), Elche, Alicante); María Araceli Garín Martín (Dpto. Economía Aplicada III (UPV/EHU), Bilbao); María Merino Maestre (Dpto. Matemátca Aplicada, Estadística e I.O. ( UPV/EHU), Leioa, Bizkaia); Gloria Pérez Sainz de Rozas (Dpto. Matemática Aplicada, Estadística e I.O. (UPV/EHU))
    Abstract: We present an algorithmic approach for solving two-stage stochastic mixed 0-1 problems. The first stage constraints of the Deterministic Equivalent Model have 0--1 variables and continuous variables. The approach uses the Twin Node Family (TNF) concept within the algorithmic framework so-called {Branch-and-Fix Coordination} for satisfying the {nonanticipativity} constraints, jointly with a Benders Decomposition scheme for solving a given {LP} model at each {TNF} integer set. As an illustrative case, the structuring of a portfolio of Mortgage-Backed Securities under uncertainty in the interest rate path along a given time horizon is used. Some computational experience is reported.
    Keywords: Two stage programming, Benders decomposition, branch-and-fix coordination
    Date: 2005–02–07
    URL: http://d.repec.org/n?u=RePEc:ehu:biltok:200501&r=cmp
  14. By: Lofgren, Hans; Thurlow, James; Robinson, Sherman
    Abstract: "Zambia is one of the poorest countries in Africa. Despite substantial reform during the 1990s, the economy has remained heavily dependent on urban-based mining. Copper's long-standing dominance led to a strong bias against agriculture, which undermined the sector's growth and export potential. Consequently poverty has remained concentrated within marginalized rural areas. Recent volatility in copper exports and growing foreign debt indicate the need for further economic diversification and pro-poor growth. These needs have been clearly identified in the country's Poverty Reduction Strategy Paper (PRSP), which outlines a series of policy objectives aimed at combating HIV/AIDS, reversing the deterioration of education and rural infrastructure, and accelerating agricultural growth. This paper uses a computable general equilibrium (CGE) model to assess the potential impact on inequality and poverty of the key PRSP policies, as well as the effects of foreign debt forgiveness and changes in the copper sector. The findings suggest that, in the absence of very rapid growth, the pro-poor policies outlined in the PRSP will not enable Zambia to reach its Millennium Development Goal (MDG) of halving poverty by 2015. Achieving this goal will require gross domestic product (GDP) to grow at an annual rate of over ten percent. Reduction in poverty can however be achieved by addressing HIV/AIDS, which currently reduces annual GDP growth by one percent. Furthermore, substantial poverty-reduction can occur through the acceleration of agricultural growth, although limited market opportunities necessitates supporting investment in rural infrastructure. Overall, the potential of the agricultural sector depends on the government's commitment to reforms and the continued removal of the antiagricultural bias created by the dominant copper sector." Authors' Abstract
    Keywords: Copper mines and mining ,Computable general equilibrium (CGE) ,HIV/AIDS Economic aspects ,agricultural sector ,
    Date: 2004
    URL: http://d.repec.org/n?u=RePEc:fpr:dsgddp:11&r=cmp
  15. By: You, Liangzhi; Wood, Stanley
    Abstract: While agricultural production statistics are reported on a geopolitical – often national - basis we often need to know the status of production or productivity within specific sub-regions, watersheds, or agro-ecological zones. Such re-aggregations are typically made using expert judgments or simple area-weighting rules. We describe a new, entropy-based approach to making spatially disaggregated assessments of the distribution of crop production. Using this approach tabular crop production statistics are blended judiciously with an array of other secondary data to assess the production of specific crops within individual ‘pixels' – typically 25 to 100 square kilometers in size. The information utilized includes crop production statistics, farming system characteristics, satellite-derived land cover data, biophysical crop suitability assessments, and population density. An application is presented in which Brazilian state level production statistics are used to generate pixel level crop production data for eight crops. To validate the spatial allocation we aggregated the pixel estimates to obtain synthetic estimates of municipio level production in Brazil, and compared those estimates with actual municipio statistics. The approach produced extremely promising results. We then examined the robustness of these results compared to short-cut approaches to spatializing crop production statistics and showed that, while computationally intensive, the cross-entropy method does provide more reliable estimates of crop production patterns.
    Keywords: Entropy ,Cross entropy ,Remote sensing ,Spatial allocation ,Crop distribution ,
    Date: 2004
    URL: http://d.repec.org/n?u=RePEc:fpr:eptddp:126&r=cmp
  16. By: Alan L. Gustman (Dartmouth College and NBER); Thomas L. Steinmeier (Texas Tech University)
    Abstract: This paper simulates the retirement effects of the various elements of proposals made by the President’s Commission to Strengthen Social Security (CSSS). Simulations are based on a structural dynamic model of retirement and savings estimated with data from the first five waves of the Health and Retirement Study. This model posits lifetime expected utility is constrained by an asset accumulation equation and an uncertain lifetime. Retirement preferences and time preferences are both allowed to be heterogeneous among workers, allowing the model to capture the peaks in retirement at both ages 62 and 65. Simulating over the next 75 years, the model suggests that the trend to earlier retirement, which has only recently been interrupted, should continue. The effect of Commission proposals is to provide individuals with incentives to delay their retirement substantially. The overall effect of these proposals could be enough to offset, or more than offset the trend to earlier retirement. The largest effects on retirement in the Commission proposals comes from a provision in Model 2 which would keep benefits roughly constant in real terms. Compared to current law, which allows benefits to grow with wages, in 2075 years this provision would increase the fraction of those 62 years old at full-time work from 39 percent to 46 percent of the cohort. Indexing benefits to life expectancy, as in Plan 3, would lower the effect to 4 percentage points, about the same effect as allowing the system to continue, and after the trust fund is exhausted, paying benefits proportional to revenue. By 2075 a proposal in the Commission’s Model 3 to reduce benefits of early retirees, but raise the actuarial adjustment for those who postpone retirement past the normal retirement age, would create a 3.4 percentage point increase in full-time work for those 65 years old, increasing the number of 65 year olds working full-time by fifteen percent. Other elements of the proposals, including increasing benefits for low wage workers and reducing benefits for high wage workers, would produce only very modest changes in retirement behavior, even within affected groups.
    Date: 2003–03
    URL: http://d.repec.org/n?u=RePEc:mrr:papers:wp038&r=cmp
  17. By: Thomas A. Abbott; John A. Vernon
    Abstract: Previous empirical studies that have examined the links between pharmaceutical price controls, profits, cash flows, and investment in research and development (R&D) have been largely based on retrospective statistical analyses of firm- and/or industry-level data. These studies, which have contributed numerous insights and findings to the literature, relied upon ad hoc reduced-form model specifications. In the current paper we take a very different approach: a prospective micro-simulation approach. Using Monte Carlo techniques we model how future price controls in the U.S. will impact early-stage product development decisions in the pharmaceutical industry. This is done within the context of a net present value (NPV) framework that appropriately reflects the uncertainty associated with R&D project technical success, development costs, and future revenues. Using partial-information estimators calibrated with the most contemporary clinical and economic data available, we demonstrate how pharmaceutical price controls will significantly diminish the incentives to undertake early-stage R&D investment. For example, we estimate that cutting prices by 40 to 50 percent in the U.S. will lead to between 30 to 60 percent fewer R&D projects being undertaken (in early-stage development). Given the recent legislative efforts to control prescription drug prices in the U.S., and the likelihood that price controls will prevail as a result, it is important to better understand the firm response to such a regulatory change.
    JEL: I1 L1 L2 L5
    Date: 2005–02
    URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11114&r=cmp
  18. By: R. I. LUTTENS; E. OOGHE
    Abstract: The design of the income transfer program for the lower incomes is a hot issue in current public policy debate. Should we stick to a generous welfare state with a sizeable basic income, but high marginal tax rates for the lower incomes and thus little incentives to work? Or, should we “make work pay” by subsidizing the work of low earners, but possibly at the cost of a smaller safety net? We think it is difficult to answer this question without making clear what individuals are (held) responsible for and what not. First, we present a new fair allocation, coined a Pareto Efficient and Shared resources Equivalent allocation (PESE), which compensates for different productive skills, but not for different tastes for working.We also characterize a fair social ordering, which rationalizes the PESE allocation. Second, we illustrate the optimal second-best allocation in a discrete Stiglitz (1982, 1987) economy. The question whether we should have regressive or progressive taxes for the low earners crucially depends on whether the low-skilled have a strictly positive or zero skill. Third, we simulate fair taxes for a sample of Belgian singles. Our simulation results suggest that “making work pay” policies can be optimal, according to our fairness criterion, but only in the unreasonable case in which most of the unemployed are not willing to work.
    Keywords: make work pay, optimal income taxation, fairness
    JEL: D63 H21
    Date: 2005–01
    URL: http://d.repec.org/n?u=RePEc:rug:rugwps:05/283&r=cmp
  19. By: Erling Holmøy and Birger Strøm (Statistics Norway)
    Abstract: We use a CGE model to estimate the social cost of a marginal increase in public expenditure in Norway. Norway exemplifies an economy with high taxes. Distortionary taxes imply wedges between the market prices and the corresponding shadow prices. The shadow prices are unobservable, which is the rationale for using a CGE model to estimate the social cost of government consumption. The social cost is decomposed into a direct resource cost and the cost of public funds. The CGE estimate of the direct resource cost is implicitly a weighted average of different opportunity costs, reflecting distortions in the Norwegian economy. Our estimate of the resource cost equals about ¾ of the ex ante market price of the resources consumed. This gap is due to a positive labour supply response combined with a high effective tax rate on labour income. Our estimate of the social cost of raising public funds through a higher pay-roll tax is about 20 percent of the direct resource cost.
    Keywords: Tax distortions; Cost-benefit analysis; Cost of public funds; Computable general equilibrium models
    JEL: H20 H21 H43 J22
    Date: 2004–12
    URL: http://d.repec.org/n?u=RePEc:ssb:dispap:396&r=cmp
  20. By: Gustavo A. Marrero (Universidad Complutense de Madrid. Facultad de Ciencias Económicas y Empresariales. Dpto. de Economía Cuantitativa)
    Abstract: In dynamic settings with public capital, it is common to assume that the government claims a constant fraction of public investment to total output each period, which is clearly a restrictive assumption. The goal of the paper is twofold: first, to find out a more reasonable rule for public investment, consistent with US data, than the constant-ratio rule; second, to analyze the impact of that rule on welfare and judge the public investment downsizing process held in US since the end of the sixties. Calibrating for US, the model simulation captures the public investment downsizing process held during 1960-2001, as well as the post-1970 slowdown in private factors productivity. Downsizing would be optimal whenever the public capital elasticity is approximately smaller than 0.09, a lower level than the general consensus in the literature. Thus, it is more likely that our result be consistent to Aschauer (1989) and Munnell (1990), which put forth that policymakers would have reduced the stock of public capital below its optimum level along this time.
    Date: 2004
    URL: http://d.repec.org/n?u=RePEc:ucm:doicae:0401&r=cmp

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