nep-cmp New Economics Papers
on Computational Economics
Issue of 2010‒04‒17
24 papers chosen by
Stan Miles
Thompson Rivers University

  1. Convergence of outcomes and evolution of strategic behavior in double auctions By Shira Fano; Marco Li Calzi; Paolo Pellizzari
  2. How to Park Freight Trains on Rail-Rail Transshipment Yards: The Train Location Problem By Michael Kellner; Nils Boysen; Malte Fliedner
  3. Heuristic Optimization Methods for Dynamic Panel Data Model Selection. Application on the Russian Innovative Performance By Ivan Savin; Peter Winker
  4. Algorithmic Support for Railway Disruption Management By Kroon, L.G.; Huisman, D.
  5. A Randomized Concave Programming Method for Choice Network Revenue Management By Kalyan Talluri
  6. A Labour Market Extension for WorldScan, Modelling Labour Supply, Wage Bargaining and Unemployment in a CGE framework By Stefan Boeters; Nico van Leeuwen
  7. The Export Base Model with a Supply-Side Stimulus to the Export Sector By Kim Swales; Soo Jung Ha
  8. Supply of Renewable Energy Sources and the Cost of EU Climate Policy By Stefan Boeters; Joris Koornneef
  9. The Geography of Internet Infrastructure: An evolutionary simulation approach based on preferential attachment By Sandra Vinciguerra; Koen Frenken; Marco Valente
  10. Improved Algorithms for a Lot-Sizing Problem with Inventory Bounds and Backlogging By Hwang, H-C.; Heuvel, W. van den
  11. Importing a Successful System? Simulating Different Regimes of Financing Social Security for Germany By Dieckhoener, Caroline; Peichl, Andreas
  12. Monte-Carlo Simulation und Due Diligence: ein methodischer Ansatz zur computergestützten Aggregierung von Wahrscheinlichkeitsverteilungen aus Expertenbefragungen By Klein, Martin
  13. Linking Partial and General Equilibrium Models: A GTAP Application Using TASTE By Narayanan, Badri; Thomas Hertel; Mark Horridge
  14. Introducing Learning Effects in Resource-constrained Project Scheduling By V. VAN PETEGHEM; M. VANHOUCKE;
  15. Corporate tax harmonization in the EU By Leon Bettendorf; Michael P. Devereux; Albert van der Horst; Ruud de Mooij
  16. Tapping the Supercomputer Under Your Desk: Solving Dynamic Equilibrium Models with Graphics Processors By Eric M. Aldrich; Jesús Fernández-Villaverde; Ronald Gallant; Juan F. Rubio-Ramírez
  17. Optimal Tax Progressivity in Unionised Labour Markets By Stefan Boeters
  18. Forecasting Realized Volatility with Linear and Nonlinear Models By Michael McAleer; Marcelo Cunha Medeiros
  19. Trade Structure and the Transmission of Economic Distress in the High-Income OECD Countries to Developing Asia By Jongwanich, Juthathip; E. James, William; J. Minor, Peter; Greenbaum, Alexander
  20. A new approximation algorithm for the multilevel facility location problem By Gabor, A.F.; Ommeren, J.C.W. van
  21. Simulation of the European Electricity Market and CCS Development with the HECTOR Model By Lohwasser, Richard; Madlener, Reinhard
  22. An analysis of individual accounts for the unemployment risk in the Netherlands By Egbert Jongen
  23. Impact of Tax Rate Cut Cum Base Broadening Reforms on Heterogeneous Firms – Learning from the German Tax Reform 2008 By Katharina Finke; Jost H. Heckemeyer; Timo Reister; Christoph Spengel
  24. "A Hybrid Asymptotic Expansion Scheme: an Application to Long-term Currency Options" By Akihiko Takahashi; Kohta Takehara

  1. By: Shira Fano (Dept. of Applied Mathematics, University of Venice); Marco Li Calzi (Dept. of Applied Mathematics and Advanced School of Economics, University of Venice); Paolo Pellizzari (Dept. of Applied Mathematics and Advanced School of Economics, University of Venice)
    Abstract: We study the emergence of strategic behavior in double auctions with an equal number n of buyers and sellers, under the distinct assumptions that orders are cleared simultaneously or asynchronously. The evolution of strategic behavior is modeled as a learning process driven by a genetic algorithm. We find that, as the size n of the market grows, allocative inefficiency tends to zero and performance converges to the competitive outcome, regardless of the order-clearing rule. The main result concerns the evolution of strategic behavior. Under simultaneous order-clearing, as n increases, only marginal traders learn to be price takers and make offers equal to their valuations/costs. Under asynchronous order-clearing, as n increases, all intramarginal traders learn to be price makers and make offers equal to the competitive equilibrium price. The nature of the order-clearing rule affects in a fundamental way what kind of strategic behavior we should expect to emerge.
    Keywords: Trading protocols; asymptotic equivalence; learning; genetic algorithms.
    JEL: D44 D82 C63 C72
    Date: 2010–02
  2. By: Michael Kellner (Friedrich-Schiller-Universität Jena, Lehrstuhl für Operations Management); Nils Boysen (Friedrich-Schiller-Universität Jena, Lehrstuhl für Operations Management); Malte Fliedner (Friedrich-Schiller-Universität Jena, Lehrstuhl für Operations Management)
    Abstract: In modern rail-rail transshipment yards huge gantry cranes spanning all railway tracks allow for an efficient transshipment of containers between different freight trains. This way, multiple trains loaded with cargo for varying destinations can be consolidated to a reduced number of homogeneous trains, which is an essential requirement of hub-and-spoke railway systems. An important problem during the daily operations of such a transshipment yard is the train location problem, which assigns each train of a given pulse to a railway track (vertical position) and decides on each train's parking position on the track (horizontal position), so that the distances of container movements are minimized and the overall workload is equally shared among cranes. For this problem a mathematical model is presented, different heuristic solution procedures are described and tested in a comprehensive computational study. The results show that our procedures allow for a remarkable reduction of train processing time compared to typical real-world train location policies.
    Keywords: Railway systems, Transshipment yards, Container handling, Parking positions
    Date: 2010–02–03
  3. By: Ivan Savin; Peter Winker
    Abstract: Innovations, be they radical new products or technology improvements are widely recognized as a key factor of economic growth. To identify the factors triggering innovative activities is a main concern for economic theory and empirical analysis. As the number of hypotheses is large, the process of model selection becomes a crucial part of the empirical implementation. The problem is complicated by the fact that unobserved heterogeneity and possible endogeneity of regressors have to be taken into account. A new efficient solution to this problem is suggested, applying optimization heuristics, which exploits the inherent discrete nature of the problem. The model selection is based on information criteria and the Sargan test of overidentifying restrictions. The method is applied to Russian regional data within the framework of a log-linear dynamic panel data model. To illustrate the performance of the method, we also report the results of Monte-Carlo simulations.
    Keywords: Innovation, dynamic panel data, GMM, model selection, threshold accepting, genetic algorithms.
    Date: 2010–02–04
  4. By: Kroon, L.G.; Huisman, D. (Erasmus Econometric Institute)
    Abstract: Disruptions of a railway system are responsible for longer travel times and much discomfort for the passengers. Since disruptions are inevitable, the railway system should be prepared to deal with them effectively. This paper explains that, in case of a disruption, rescheduling the timetable, the rolling stock circulation, and the crew duties is so complex that solving them manually is too time consuming in a time critical situation where every minute counts. Therefore, algorithmic support is badly needed. To that end, we describe models and algorithms for real-time rolling stock rescheduling and real-time crew rescheduling that are currently being developed and that are to be used as the kernel of decision support tools for disruption management. Furthermore, this paper argues that a stronger passenger orientation, facilitated by powerful algorithmic support, will allow to mitigate the adverse effects of the disruptions for the passengers. The latter will contribute to an increased service quality provided by the railway system. This will be instrumental in increasing the market share of the public transport system in the mobility market.
    Date: 2009–12–17
  5. By: Kalyan Talluri
    Abstract: The randomized linear programming (RLP) proposed in [23] is a very simple and fast simulation-based method that has been found to be surprisingly effective and robust for generating upper bounds and bid-price controls for network revenue management (see [26] for simulations comparing the alternatives). RM incorporating more realistic models of customer behavior, as customers choosing from an offer set, have recently become popular (see [24]). Many network RM extensions of such models ([8], [15], [12], [28], [17]) have subsequently been proposed. The extensions to the choice model of customer behavior however are considerably more difficult to solve. The formulations have an exponential number of columns and the solution strategy is to use column generation. But finding an entering column is computationally easy only in a limited number of cases. Given the difficulties in solving these methods, it is natural to explore the RLP methodology for the choice model. In this paper we first give a segment-based deterministic concave-program (SDCP) upper bound to the dynamic program, that coincides with the CDLP upper-bound of [8] and [15] for non-overlapping segments. We then tighten the bound by a simulation-based randomized concave programming (RCP) method, similar to the RLP for the independent-class model. The advantage is that (i) we get a tighter bound for the non-overlapping segment model, and (ii) we are able to solve larger classes of choice models (with overlapping segments). If the number of elements in a consideration set for a segment is not very large, both (SDCP) and (RCP) can be applied to any choice model whatsoever, expanding the models well beyond tractable-but-restrictive ones such as multinomial-logit.
    Keywords: bid prices, yield management, simulation, heuristics, randomized algorithms.
    JEL: M11 M31 L93 L83
    Date: 2010–04
  6. By: Stefan Boeters; Nico van Leeuwen
    Abstract: This paper describes a labour market extension for the CGE model "WorldScan". The labour market module features endogenous labour supply at two margins: participation and hours of work. Involuntary unemployment is captured through a collective bargaining ("right to manage") set-up. The paper explains how these two labour market mechanisms interact and how they are calibrated to empirical elasticities. Illustrative simulations that can be placed in the context of the "double dividend" literature show the working mechanisms of the module.
    Keywords: WorldScan; computable general equilibrium model; labour market; labour supply; involuntary unemployment
    JEL: C68 D58 J20 J50
    Date: 2010–03
  7. By: Kim Swales (Department of Economics, University of Strathclyde); Soo Jung Ha (Department of Economics, University of Strathclyde)
    Abstract: In the export-base model, the level of a region’s economic activity is underpinned by the performance of its export sector (Daly, 1940; Dixon and Thirlwall, 1975; Kaldor, 1970; North, 1955). This theory is now almost universally represented as a primitive version of the familiar Input-Output (IO) or Keynesian demand-driven approach, where regional output is linked to regional exports through a rather mechanistic multiplier process (Romanoff, 1974). Further, in a standard IO inter-regional framework, the expansion of output in one region always generates positive impacts on other regions. That is to say, there is always a positive spread, and no negative backwash, effect. However, these models typically embody no supply-side constraints. What is more, the stimulus to the export sector is often thought to come through supply-side improvements (North, 1955; McCombie, 1992). Whilst accepting that the development of a healthy export base is generally central to promoting the growth of the regional economy, the relationship is likely to be much more complex than is usually thought. Also whilst an increase in regional exports typically increases economic activity in the target region, the effect on other regions is less straightforward (Myrdal, 1957). In this paper we begin by using a single-region IO analysis of the operation of a stylised export base model. The impact of a conventional increase in export demand is compared to a situation in which increased competitiveness underpins the improved export performance. This analysis is then extended through the use of an inter-regional (Scotland–Rest of the UK) Computable General Equilibrium (CGE) model. In simulation, different exogenous demand and supply side disturbances are calibrated so as to generate the same long-run expansion in Scottish manufacturing exports. The subsequent specific evolutions of regional GDP and employment in both Scotland and the rest of the UK (RUK) are then tracked.
    Keywords: Export base, efficiency improvement, regional growth
    JEL: R11 R13 R58
    Date: 2010–03
  8. By: Stefan Boeters; Joris Koornneef
    Abstract: What are the excess costs of a separate 20% target for renewable energy as a part of the EU climate policy for 2020? We answer this question using a computable general equilibrium model, WorldScan, which has been extended with a bottom-up module of the electricity sector. The model set-up makes it possible to directly use available estimates of costs and capacity potentials for renewable energy sources for calibration. In our base case simulation, the costs of EU climate policy with the renewables target are 6% higher than those of a policy without this target. As information on the supply of renewable energy is scarce and uncertain, we perform an extensive sensitivity analysis with respect to the level and steepness of the supply curves for wind energy and biomass. In the range we explore, the excess costs vary from zero (when the target is not binding) to 23% (when the cost progression and the initial cost disadvantage for renewables are doubled).
    Keywords: EU climate policy; renewable energy; computable general equilibrium model
    JEL: Q42 Q54 D58
    Date: 2010–02
  9. By: Sandra Vinciguerra; Koen Frenken; Marco Valente
    Abstract: We model the evolution of infrastructure networks as a preferential attachment process. We assume that geographical distance and country borders provide barriers to link formation in infrastructure networks. The model is validated against empirical data on the European Internet infrastructure network covering 209 cities. We successfully simulate the average path length and average clustering coefficient of the observed network. Furthermore, the simulated network shows a significant correlation with the observed European Internet infrastructure network. We end with a discussion on the future uses of preferential attachment models in the light of the literature on world cities and global cities.
    Keywords: internet infrastructure, network, simulation, preferential attachment
    JEL: C63 O18 R1 L96
    Date: 2010–04
  10. By: Hwang, H-C.; Heuvel, W. van den (Erasmus Econometric Institute)
    Abstract: This paper considers a dynamic lot-sizing problem with storage capacity limitation in which backlogging is allowed. For general concave production and inventory costs, we present an O(T2) dynamic programming algorithm where ï”is the length of the planning horizon. Furthermore, for fixed-charge and nonspeculative costs, we provide O(Tlog T) and O(T) algorithms, respectively. This paper therefore concludes that the time complexity to solve the bounded inventory lot-sizing problem with backlogging is the same as the complexity to solve the uncapacitated lot-sizing problem for the commonly used cost structures
    Keywords: lot-sizing;storage capacity;inventory and production;algorithms
    Date: 2010–03–29
  11. By: Dieckhoener, Caroline (University of Cologne); Peichl, Andreas (IZA)
    Abstract: In Germany, there is an ongoing debate about how to increase the efficiency of the social security system. The aim of this paper is to simulate different financing systems for Germany with its typical Conservative welfare state regime. For our analysis, we rely on the European static multinational microsimulation model EUROMOD, which provides the opportunity to implement the financing systems of other European countries in Germany (policy swap). The introduction of a Liberal British or the Southern Greek financing system increases inequality and poverty, as well as labour supply incentives. The introduction of the Social-democratic Danish financing system decreases inequality of incomes and leads to ambiguous incentives effects. Our results suggest that there is scope for efficiency increasing reforms in Germany although we do not simulate behavioural responses.
    Keywords: social security, welfare states, comparative analysis, EUROMOD
    JEL: C81 D31 H24
    Date: 2009–05
  12. By: Klein, Martin
    Abstract: The combination of experts' probability distributions involved in a due diligence is valuable for encapsulating the accumulated information for decision makers and providing the current state of expert opinion regarding important uncertainties. Therefore, this paper shows how to create and combinate experts' probability distributions which can be used in a monte-carlo simulation to calculate company values. --
    Keywords: Unternehmensbewertung,Due Diligence,Monte-Carlo Simulation,Delphi-Methode,Szenarioanalyse,Sensitivitätsanalyse,Expertenbefragung,Wahrscheinlichkeitsverteilung,Simulationssoftware Valuation,due diligence,monte-carlo method,simulation,business forecast,forecast uncertainty,scenario analysis,sensitivity analysis,probability distribution,combining probabilities,expert judgment
    JEL: C80 G32 G34
    Date: 2010
  13. By: Narayanan, Badri; Thomas Hertel; Mark Horridge
    Abstract: CGE models are utilized for the evaluation of trade policy reforms, yet they are typically highly aggregated, limiting their usefulness to trade negotiators interested in impacts at the tariff line. Partial Equilibrium (PE) models used for disaggregate analysis lack the benefits of an economy-wide analysis required to examine the overall impact of trade policy reforms. This suggests the need for a PE-GE, nested modeling framework to support trade policy analysis. In this paper, we develop a PE model that captures international trade, domestic consumption and output, using CET and CES structures, market clearing conditions and price linkages, nested within the standard GTAP Model. In addition, we extend the welfare decomposition of Huff and Hertel (2001) to this PE-GE model to contrast the sources of welfare gain among models. To illustrate the value-added of this model, we examine the impact of multi-lateral tariff liberalization on the Indian economy, with special focus on the auto sector, using PE, GE and PE-GE models. The PE model does not predict the change in overall size and price level for the industry well, while the GE model underestimates the aggregate welfare gain due to tariff averaging. It also fails to account for the change in industry composition resulting from trade reform. These findings are robust to wide variation in model parameters. We conclude that the linked model is superior to both the GE and PE counterparts.
    Date: 2010
    Abstract: Learning effects assume that the efficiency of a resource increases with the duration of a task. Although these effects are commonly used in machine scheduling environments, they are rarely used in a project scheduling setting. In this paper, we study and model learning effects in a project scheduling environment and apply the model to the discrete time/resource trade-o_ scheduling problem (DTRTP), where each activity has a _fixed work content for which a set of execution modes (duration/resource requirement pairs) can be defined. Computational results emphasize the significant impact of learning effects on the project schedule, measure the margin of error made by ignoring learning and show that timely incorporation of learning effects can lead to significant makespan improvements.
    Date: 2010–01
  15. By: Leon Bettendorf; Michael P. Devereux; Albert van der Horst; Ruud de Mooij
    Abstract: This paper explores the economic consequences of proposed EU reforms for a common consolidated corporate tax base. The reforms replace separate accounting with formula apportionment as a way to allocate corporate tax bases across countries. To assess the economic implications, we use a numerical CGE model for Europe. It encompasses several decision margins of firms such as marginal investment, FDI decisions, and multinational profit shifting. The simulations suggest that consolidation does not yield substantial welfare gains for Europe. The variation of effects across countries is large and depends on the choice of the apportionment formula. Consolidation with formula apportionment does not weaken incentives for tax competition. Tax competition instead offers a rationale for rate harmonisation, in addition to base harmonisation.
    Keywords: Corporate Tax Harmonisation; Common Consolidated Corporate Tax Base; Applied General Equilibrium; European Union
    JEL: C68 F23 H25
    Date: 2009–11
  16. By: Eric M. Aldrich (Department of Economics, Duke University); Jesús Fernández-Villaverde (Department of Economics, University of Pennsylvania); Ronald Gallant (Fuqua School of Business, Duke University); Juan F. Rubio-Ramírez (Department of Economics, Duke University)
    Abstract: This paper shows how to build algorithms that use graphics processing units (GPUs) installed in most modern computers to solve dynamic equilibrium models in economics. In particular, we rely on the compute uni.ed device architecture (CUDA) of NVIDIA GPUs. We illustrate the power of the approach by solving a simple real business cycle model with value function iteration. We document improvements in speed of around 200 times and suggest that even further gains are likely.
    Keywords: GPU computing, Dynamic Equilibrium models
    JEL: E0 C87
    Date: 2010–04–10
  17. By: Stefan Boeters
    Abstract: In labour markets with collective wage bargaining higher progressivity of the labour income tax creates a trade-off. On the one hand, wages are lowered and unemployment decreases, on the other hand, the individual labour supply decision is distorted at the hours-of-work margin. The optimal level of tax progressivity within this trade-off is determined using a numerical general equilibrium model with imperfect competition on the goods market, collective wage bargaining and a labour-supply module calibrated to empirically plausible elasticity values. The model is calibrated to macroeconomic and institutional parameters of both the OECD average and a number of individual OECD countries. In most cases the optimal degree of tax progressivity is below the actual level. A decomposition approach shows that the optimal level is increased by high unemployment and by the general tax level.
    Keywords: labour taxation; tax progressivity; optimal taxation; collective wage bargaining; unemployment
    JEL: H21 J22 J51 J64
    Date: 2009–10
  18. By: Michael McAleer (Econometric Institute, Erasmus University Rotterdam); Marcelo Cunha Medeiros (Department of Economics PUC-Rio)
    Abstract: In this paper we consider a nonlinear model based on neural networks as well as linear models to forecast the daily volatility of the S&P 500 and FTSE 100 indexes. As a proxy for daily volatility, we consider a consistent and unbiased estimator of the integrated volatility that is computed from high frequency intra-day returns. We also consider a simple algorithm based on bagging (bootstrap aggregation) in order to specify the models analyzed in this paper.
    Keywords: Financial econometrics, volatility forecasting, neural networks, nonlinear models, realized volatility, bagging.
    Date: 2010–03
  19. By: Jongwanich, Juthathip (Asian Development Bank); E. James, William (Asian Development Bank); J. Minor, Peter (Asian Development Bank); Greenbaum, Alexander (Asian Development Bank)
    Abstract: This paper examines the structure and direction of developing Asia’s trade over the past two decades. The impacts on developing Asia of the economic slowdown in 2009–2010 in high-income countries of the Organization for Economic Cooperation and Development (OECD), which includes the European Union (EU), Japan, and United States (US) are projected through a computable general equilibrium model (CGE) of world trade and production. In addition, the impacts of fiscal stimulus and the rise of protectionist sentiments within developing Asia are examined. The expansion of intraregional trade in Asia reflects the role of the People’s Republic of China (PRC) as an assembly point and its reliance on demand from outside the region, the EU and the US in particular. The trade channel is crucial in transmitting economic distress from the OECD countries to developing Asia. The projection shows that developing Asia will continue to suffer from demand decline in OECD countries, with the PRC and India being the most impacted. Though Southeast Asia faces reduced exports to the OECD countries, its exports are reduced significantly to other Asian exporters, demonstrating the indirect trade linkages that now exist in the global economy. Fiscal stimulus from the largest economies (including PRC, EU, Japan, and US) could help boost trade and gross domestic product growth in developing Asia but it is not projected to offset entirely the negative impact from the global economic downturn. Protectionism has a negative impact on the countries and regions that take that course. Southeast Asia would be the most impacted by protectionism. If Southeast Asian countries were to raise their applied tariffs to the maximum most-favored nation bound rates under the World Trade Organization, the impact would be negative on real gross domestic product. Heavy manufactures followed by light manufactures, electronics, and textiles are most impacted.
    Keywords: Trade; CGE model; Forecasting/Simulations; Developing Asia
    JEL: C63 F17 O53
    Date: 2009–05
  20. By: Gabor, A.F.; Ommeren, J.C.W. van (Erasmus Econometric Institute)
    Abstract: In this paper we propose a new integer programming formulation for the multilevel facility location problem and a novel 3-approximation algorithm based on LP-rounding. The linear program that we use has a polynomial number of variables and constraints, thus being more efficient than the one commonly used in the approximation algorithms for these types of problems.
    Keywords: Approximation algorithms;Facility location;Randomized algorithms
    Date: 2010–01–01
  21. By: Lohwasser, Richard (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN)); Madlener, Reinhard (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN))
    Abstract: In this paper we introduce HECTOR, a new and advanced long-term electricity market model that simulates market behavior bottom-up through opportunistic, variable cost-based bidding of individual power plants into auction-based national markets with international interconnection capacities. Unlike most other approaches, we implement the objective function on an hourly level. This allows for a reduction of the solution space, and enables a higher modeling resolution, including opportunistic bidding behavior of power plants based on expected supply scarcity, and ex-post investment decisions based on NPV considerations. The model simulates the electricity markets of 19 European countries, with over 400 groups of power plants, and is able to closely approximate historic electricity prices. The average base load price computed by the model for 2006-2008 and across the largest regions in Europe is 54.5 €/MWh, compared to 54.8 €/MWh in reality, using 2005 as training period. In a projection until 2040, we find that conventional fossil fuel-fired power plants are replaced both by renewable energy technologies and large quantities of CCS, the latter of which almost fully utilize available CO2 storage capacities in some of the regions studied.
    Keywords: Electricity market; simulation; model; forecast; CCS
    JEL: C63 O30
    Date: 2009–11
  22. By: Egbert Jongen
    Abstract: Individual savings accounts are a recurring reform option for unemployment insurance. Under a system of individual accounts, individuals are forced to save part of their income into an individual account out of which benefits are paid during unemployment. Individuals are allowed to have a negative balance and still have the same access to income during unemployment. When negative balances at the end of the working life are nullified, some risk pooling remains. To study the impact of introducing individual accounts for unemployment, we construct a simulation model, which we calibrate for the Netherlands. The simulations results suggest that an optimal combination of the forced savings rate and the replacement rate can slightly increase welfare, when unemployed are credit constrained. When credit constraints are not that important for unemployment, individual accounts are less interesting for unemployment, but then current UI replacement rates seem rather generous. Empirical studies suggest that credit constraints are not that important for unemployment.
    Keywords: individual savings accounts; benefits; unemployment; welfare state
    Date: 2009–06
  23. By: Katharina Finke (Centre for European Economic Research (ZEW)); Jost H. Heckemeyer (Centre for European Economic Research (ZEW)); Timo Reister (Centre for European Economic Research (ZEW),); Christoph Spengel (University of Mannheim)
    Abstract: The German corporate tax reform of 2008 has brought about important cuts in corporate tax rates, which were at the same time accompanied by significant changes in the determination of the tax base for both major German corporate taxes - corporate income tax and trade tax. The reform followed the distinct and internationally prevalent pattern of tax rate cut cum base broadening. Its implications are thus not unique to Germany. Especially in view of the current economic crisis, questions on the distribution of the tax burden among firms of different characteristics have arisen and still remain at the heart of the academic and political debate in Germany and other countries. In this paper we present a new corporate microsimulation model, ZEW TaxCoMM, which allows for the coherent micro-based analysis of revenue implications of tax reforms and the distribution of tax consequences among heterogeneous firms. The model processes firm-level financial accounting input data and derives the firm specific tax base and tax due endogenously in accordance with the tax code. To smooth out distortions between the sample and the population of German corporations, the sample is extrapolated on the basis of the corporate income tax statistic. The simulation results show inter alia that less than 5% of all corporations did not benefit from the reform. The average annual relief as measured by the average decline in the effective tax burden on cash flows amounts to 2.8 percentage points for large corporations and to 6 percentage points for small corporations. Furthermore, the results illustrate that firms with low profitability, high debt ratio and high capital intensity benefit least from the reform. As to tax revenues, the reform induced decrease amounts to € 9.8 billion and the trade tax gains fiscally in importance.
    Keywords: tax reform, microsimulation, tax policy evaluation
    JEL: H25 H32 K34 C8
    Date: 2010
  24. By: Akihiko Takahashi (Faculty of Economics, University of Tokyo); Kohta Takehara (Graduate School of Economics, University of Tokyo)
    Abstract: This paper develops a general approximation scheme, henceforth called a hybrid asymptotic expansion scheme for valuation of multi-factor European path-independent derivatives. Specifically, we apply it to pricing long-term currency options under a market model of interest rates and a general diffusion stochastic volatility model with jumps of spot exchange rates. Our scheme is very effective for a type of models in which there exist correlations among all the factors whose dynamics are not necessarily affine nor even Markovian so long as the randomness is generated by Brownian motions. It can also handle models that include jump components under an assumption of their independence of the other random variables when the characteristic functions for the jump parts can be analytically obtained. An asymptotic expansion approach provides a closed-form approximation formula for their values, which can be calculated in a moment and thus can be used for calibration or for an explicit approximation of Greeks of options. Moreover, this scheme develops Fourier transform method with an asymptotic expansion as well as with closed-form characteristic functions obtainable in parts of a model, extending the method proposed by Takehara and Takahashi[2008] to be applicable to a general class of models. It also introduces a characteristic-function-based Monte Carlo simulation method with the asymptotic expansion as a control variable in order to make full use of analytical approximations by the asymptotic expansion and of the closed-form characteristic functions. Finally, a series of numerical examples shows the effectiveness of our scheme.
    Date: 2010–04

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