nep-cmp New Economics Papers
on Computational Economics
Issue of 2009‒02‒28
eight papers chosen by
Stan Miles
Thompson Rivers University

  1. Why Previous Estimates of the Cost of Climate Mitigation are Likely Too Low By Beckman, Jayson; Hertel, Thomas
  2. Population Ageing and Structural Adjustment By James Giesecke; G.A. Meagher
  3. SWEtaxben: A Swedish Tax/benefit Micro Simulation Model and an Evaluation of a Swedish Tax Reform. By Ericson, Peter; Flood, Lennart; Wahlberg, Roger
  4. Economic Implications of Deeper Asian Integration By Francois, Joseph; Wignaraja, Ganeshan
  5. Solving the Incomplete Markets Model with Aggregate Uncertainty using Explicit Aggregation By Den Haan, Wouter; Rendahl, Pontus
  6. Labour Income Taxation, Human Capital and Growth: The Role of Child Care By Casarico, Alessandra; Sommacal, Alessandro
  7. Should Dynamic Scoring be done with Heterogeneous Agent-Based Models? Challenging the Conventional Wisdom By Bing Li
  8. Comparison of Solutions to the Incomplete Markets Model with Aggregate Uncertainty By Den Haan, Wouter

  1. By: Beckman, Jayson; Hertel, Thomas
    Abstract: Computable general equilibrium (CGE) models have been heavily utilized in analyses of the costs of Greenhouse Gas mitigation policies. This is in large part due to their ability to simulate potential impacts of prospective economic policies taking into inter-sectoral and international interactions. Although CGE models have received heavy usage; they are often criticized as being insufficiently validated. Key parameters are often not econometrically estimated, and the performance of the model as a whole is rarely checked against historical outcomes. As a consequence, questions frequently arise as to how much faith one can put in CGE results. Our findings indicate that many earlier CGE-based studies may have understated the cost of meeting these targets by overstating the price elasticity of demand for energy. These results suggest that we must revisit the cost of climate policies in light of newly validated CGE models.
    Date: 2009
  2. By: James Giesecke; G.A. Meagher
    Abstract: The future effects of population ageing on the Australian economy have been widely canvassed in recent years, most notably in the two Intergenerational Reports produced by the Australian Treasury and in the Economic Implications of an Ageing Australia report produced by the Productivity Commission. These reports are mainly concerned with the effect of ageing on the government's budgetary position. On the income side, they focus on how ageing affects labour supply and gross domestic product. On the expenditure side, they focus on how ageing affects various spending categories including education, health and aged care. This paper provides a complementary analysis in that it considers how the structure of the economy is likely to be affected by these influences. In particular, it analyses the effects on 64 skill groups, 81 occupations and 106 industries: * a scale effect due to age-related shifts in total hours of employment (with the skill composition of employment unchanged). * a skill effect due to age-related shifts in hours of employment distinguished by skill (with total hours of employment unchanged), * a taste effect due to age-related shifts in the commodity composition of household final consumption, and * public effect due to age-related shifts in government final consumption. The simulations are conducted using the MONASH applied general equilibrium model of the Australian economy. They generate results for each year from 2004-05 to 2024-25, but the analysis concentrates on explaining the deviations in the levels of selected variables in the basecase (ageing) simulation from their values in the counterfactual (no ageing) simulation in the final year, i.e., 2024-25. Results are reported separately for each of the four effects and for all four taken together (the total effect). The paper pays particular attention to the implications of the analysis for economic policy.
    Keywords: computable general equilibrium modelling, population ageing, economic policy
    JEL: C68 D58 J11 J21 J23
    Date: 2009–01
  3. By: Ericson, Peter (Sim Solution); Flood, Lennart (Department of Economics, School of Business, Economics and Law, Göteborg University); Wahlberg, Roger (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: The purpose of SWEtaxben is to evaluate the impact of changes in the tax/benefit systems on households as well as the central governmental budget. Relating to the micro simulation literature this model can be labeled a static micro simulation model with behavioral changes. This behavioral change takes two different forms and use two different types of models; first binary models that describe mobility in/out from non-work states such as old age pension, disability, unemployment, long term sickness and second models that describe change in working hours and welfare participation. Thus, apart from the choice to work or not to work, working hours conditional on working as well as welfare participation are treated as endogenous variables. As an application the model is used to evaluate the recent Swedish “make work pay” reform, effective from 2007 and further reinforced in 2008 and 2009. The key characteristic of this reform is an in-work tax credit and decreased state tax rate. Simulations performed by SWEtaxben show increased working hours at both the intensive as well as extensive margin. The tax decrease together with dynamic changes results in a strong increase in household’s incomes but also a reduction in income inequality. However, even considering the increase in hours of work, the reform is far from being self-financed.<p>
    Keywords: Micro simulation; tax-benefit system; reform
    JEL: D31 H24
    Date: 2009–02–24
  4. By: Francois, Joseph; Wignaraja, Ganeshan
    Abstract: The Asian countries are once again focused on options for large, comprehensive regional integration schemes. In this paper we explore the implications of such broad-based regional trade initiatives in Asia, highlighting the bridging of the East and South Asian economies. We place emphasis on the alternative prospects for insider and outsider countries. We work with a global general equilibrium model of the world economy, benchmarked to a projected 2017 sets of trade and production patterns. We also work with gravity-model based estimates of trade costs linked to infrastructure, and of barriers to trade in services. Taking these estimates, along with tariffs, into our CGE model, we examine regionally narrow and broad agreements, all centered on extending the reach of ASEAN to include free trade agreements with combinations of the northeast Asian economies (PRC, Japan, Korea) and also the South Asian economies. We focus on a stylized FTA that includes goods, services, and some aspects of trade cost reduction through trade facilitation and related infrastructure improvements. What matters most for East Asia is that China, Japan, and Korea be brought into any scheme for deeper regional integration. This matter alone drives most of the income and trade effects in the East Asia region across all of our scenarios. The inclusion of the South Asian economies in a broader regional agreement sees gains for the East Asian and South Asian economies. Most of the East Asian gains follow directly from Indian participation. The other South Asian players thus stand to benefit if India looks East and they are a part of the program, and to lose if they are not. Interestingly, we find that with the widest of agreements, the insiders benefit substantively in terms of trade and income while the aggregate impact on outside countries is negligible. Broadly speaking, a pan-Asian regional agreement would appear to cover enough countries, with a great enough diversity in production and incomes, to actually allow for regional gains without substantive third-country losses. However, realizing such potential requires overcoming a proven regional tendency to circumscribe trade concessions with rules of origin, NTBs, and exclusion lists. The more likely outcome, a spider web of bilateral agreements, carries with it the prospect of signficant outsider costs (i.e. losses) both within and outside the region.
    Keywords: ASEAN; Asian FTAs; gravity model of services; preferential trade; regionalism; trade costs and infrastructure
    JEL: F13 F17
    Date: 2008–09
  5. By: Den Haan, Wouter; Rendahl, Pontus
    Abstract: We construct a method to solve models with heterogeneous agents and aggregate uncertainty that is simpler than existing algorithms; the aggregate law of motion is obtained neither by simulation nor by parameterization of the cross-sectional distribution, but by explicitly aggregating the individual policy rule. This establishes a link between the individual policy rule and the set of necessary aggregate state variables. In particular, the cross-sectional average of each basis function in the individual policy rule is a state variable. That is, if the individual capital stock, k, (or k²) enters the policy function then the mean of k (or the mean of k²) is a state variable. The laws of motions for these aggregate state variables are obtained by explicit aggregation of separate individual policy functions for the different elements.
    Keywords: numerical solutions; projection methods
    JEL: C63 D52
    Date: 2008–09
  6. By: Casarico, Alessandra; Sommacal, Alessandro
    Abstract: This paper studies the effects of labour income taxation on growth in an OLG model where both formal schooling and child care enter the human capital production function as complements. We compare them with the effects obtained in a model where only formal schooling matters for skill formation. Using a numerical analysis we find that the omission of child care from the technology of skills' formation can significantly bias the results related to the effects of labour income taxation on growth.
    Keywords: child care; growth; human capital; labour supply; taxation
    JEL: H31 J22
    Date: 2008–11
  7. By: Bing Li (Indiana University Bloomington)
    Abstract: To estimate a single-equation scal policy rule by Ordinary Least Squares (OLS) method has been one of the common approaches to identify scal policy behavior. However, OLS regression on the scal policy rule is subject to simultaneity bias because the scal rule is isolated from a system of equations implied by general equilibrium theory. This paper investigates the simultaneity bias problem within a simple Dynamic Stochastic General Equilibrium (DSGE) model. We derive the analytical form of the simultaneity bias, which turns out to extensively exist in the parameter space. Consequently, structural interpretation of the OLS estimator of the scal policy rule may be misleading and the corresponding identication of scal policy behavior may be unreliable. We calibrate the model to the U.S. data and use Monte Carlo experiments for illustration. The simultaneity bias problem examined here is inherent in general equilibrium framework, which should call for extra caution of the empirical macroeconomists.
    JEL: E62 H2 H3 H6
    Date: 2008–11
  8. By: Den Haan, Wouter
    Abstract: This paper compares numerical solutions to the model of Krusell and Smith (1998) generated by different numerical algorithms. The algorithms have very similar implications for the correlations between different variables. Larger differences are observed for (i) the unconditional means and standard deviations of individual variables, (ii) the behavior of individual agents during particularly bad times, (iii) the volatility of the per capita capital stock, and (iv) the behavior of the higher-order moments of the cross-sectional distribution. For example, the two algorithms that differ the most from each other generate individual consumption series that have an average (maximum) difference of 1.6% (11.4%). Several outcomes of this comparison project should be useful in using these and other algorithms in future work.
    Keywords: approximations; numerical solutions
    JEL: C63
    Date: 2008–10

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