nep-cmp New Economics Papers
on Computational Economics
Issue of 2011‒07‒27
eight papers chosen by
Stan Miles
Thompson Rivers University

  1. Preferential vs. Full Trade Liberalisation: A Dynamic CGE Model with Heterogeneous Households for Jordan By Feraboli, Omar
  2. Trade Liberalization and Poverty: A Macro-Micro Analysis in Ethiopia By Kebede, Sindu; Fekadu, Belay; Aredo, Dejene
  3. Income tax deduction of commuting expenses and tax funding in an urban CGE study: the case of German cities By Hirte, Georg; Tscharaktschiew, Stefan
  4. Should subsidies to urban passenger transport be increased? A spatial CGE analysis for a German metropolitan area By Tscharaktschiew, Stefan; Hirte, Georg
  5. Dual Sourcing Using Capacity Reservation and Spot Market: Optimal Procurement Policy and Heuristic Parameter Determination By Karl Inderfurth; Peter Kelle; Rainer Kleber
  6. Ramifications of Debt Restructuring on the Euro Area: The Example of Large European Economies' Exposure to Greece By Ansgar Belke; Christian Dreger
  7. Capital allocation in financial institutions: the Euler method By Dora Balog
  8. Saving, Microinsurance: Why You Should Do Both or Nothing. A Behavioral Experiment on the Philippines By Landmann, Andreas; Vollan, Björn; Frölich, Markus

  1. By: Feraboli, Omar
    Abstract: This paper deals with the economic effects and the policy implications of trade liberalisation on the Jordanian economy, with emphasis on welfare, income distribution and real wages of heterogeneous households, by using a neoclassical dynamic computable general equilibrium (CGE) model. Specifically the paper assesses the impacts of preferential trade liberalisation with the European Union (EU) and compare them with those brought about by broad and non-discriminatory trade liberalisation. --
    Keywords: Dynamic CGE Models,Heterogeneous households,Trade liberalisation,Jordan
    JEL: C68 F11 I32 D31
    Date: 2011
  2. By: Kebede, Sindu; Fekadu, Belay; Aredo, Dejene
    Abstract: Using a CGE model, this study analyses the impact of trade liberalization on poverty at the household level taking Ethiopia as a case. Two scenarios (complete tariff cut and uniform tariff scheme) suggest that further liberalization of trade has little short-run effect on the overall economy. However, the agriculture-based manufacturing sector (in particular, textile and leather) is likely to be strongly affected by further tariff reduction. Reductions in import prices of textiles and leather products increase imports of these goods implying that trade liberalization is likely to dampen domestic production of textile and leather products. Poverty shows a slight increase in both scenarios. At the national level, a complete tariff cut results in an increase in poverty by 2.8 percent, while a uniform tariff scheme raises poverty by 2.3 percent. Similarly, it is found that poverty gap and poverty severity indices show a slight increase. Comparing the effect of trade reform on different household groups, i.e. farm households, wage earner households and entrepreneur households, poverty in entrepreneur households increases by a higher percentage change (3.2 percent) in the complete tariff cut scenario. Poverty incidence increases by 1.7 and 1.5 percent for farm households and wage earners, respectively, under the complete tariff cut scenario. This comparison holds consistently when looking at the more realistic uniform tariff scheme. Entrepreneur households are at a disadvantage due to trade liberalization shown in the poverty gap and poverty severity indices. This is consistent with the theoretical argument that previously protected infant industries are highly affected by trade liberalization. --
    Keywords: trade liberalization,poverty,CGE,import duties,macro-micro simulation
    Date: 2011
  3. By: Hirte, Georg; Tscharaktschiew, Stefan
    Abstract: Germany like many other European countries subsidize commuting by granting the right to deduct commuting expenses from the income tax base. This regulation has often been changed and has regularly been under debate during the last decades. The pros (e.g. causing efficiency gains with respect to the spatial allocation of labor) and cons (e.g. causing urban sprawl) are well documented. Nonetheless, there is need for further research. For reasons of tractability the few models applied in the tax deduction related literature are based on restrictive assumptions particularly concerning the design of the income taxation scheme and the structure of households (neglecting household heterogeneity) and, most importantly, they do not integrate labor supply and location decision problems simultaneously. Here, for the first time, those and more features are taken into account in a full spatial general equilibrium simulation approach calibrated to an average German city. This model is applied to calculate the impacts of tax deductions on an urban economy thereby considering different funding schemes. Our results suggest that the tax deduction level currently chosen is below the optimal level in the case of income tax funding. If a change in the tax base occurs, e.g. toward consumption tax or energy tax funding, the optimal size of the subsidy should be even higher. Furthermore, the different policy packages cause a very differentiated pattern regarding welfare distribution, environmental (CO2 emissions) and congestion effects. We also find surprisingly small effects on urban sprawl characterized by suburbanization of residences and jobs, increasing commuting distances and spatial city growth. --
    Keywords: urban general equilibrium model,commuting subsidies,income tax deduction
    JEL: C68 R12 R13 R14 R20 R51
    Date: 2011
  4. By: Tscharaktschiew, Stefan; Hirte, Georg
    Abstract: The objective of this paper is to examine efficiency, distributional, environmental (CO2 emissions) and spatial effects of increasing different kinds of transport subsidies discriminating between household types, travel purposes and travel modes. The effects are calculated by applying a numerical spatial general equilibrium approach calibrated to an average German metropolitan area. In extension to most studies focusing on only one kind of subsidy, we compare the effects of different transport subsidies within the same unified framework that allows to account for two features not yet considered simultaneously in studies on transport subsidies: endogenous labor supply and location decisions. Furthermore, congestion, travel mode choice, travel related CO2 emissions and institutional details regarding the tax system in Germany are taken into account. The results suggest that optimal subsidy levels are either small or even zero. While subsidizing public transport is welfare enhancing, subsidies to urban road traffic reduce aggregate urban welfare. Concerning the latter it is shown that making investments in urban road infrastructure capacity or reducing gasoline taxes may even be harmful to residents using predominantly automobile. In contrast, pure commuting subsidies hardly affect aggregate urban welfare, but distributional effects are substantial. All policies contribute to urban sprawl by raising the spatial imbalance of residences and jobs but the effect is relatively small. In addition, the policies induce a very differentiated pattern regarding distributional effects, environmental effects and benefits of landowners. --
    Keywords: urban general equilibrium model,transport policy,transport subsidy,commuting
    JEL: H24 R13 R14 R20 R48 R51
    Date: 2011
  5. By: Karl Inderfurth (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Peter Kelle (Department of Information Systems and Decision Sciences, Louisiana State University); Rainer Kleber (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
    Abstract: This contribution focuses on the cost-effective management of the combined use of two procurement options: the short-term option is given by a spot market with random price, whereas the long-term alternative is characterized by a multi period capacity reservation contract with fixed purchase price and reservation level. A reservation cost, proportional with the reservation level, has to be paid for the option of receiving any amount per period up to the reservation level. A long-term decision has to be made regarding the reserved capacity level, and then it has to be decided - period by period - which quantities to procure from the two sources. Considering the multi-period problem with stochastic demand and spot price, the structure of the optimal combined purchasing policy is derived using stochastic dynamic programming. Furthermore, a simple heuristic procedure is developed to determine the respective policy parameters. Finally, we present a comprehensive numerical study showing that our heuristic policy performs very well.
    Keywords: Dual sourcing, capacity reservation, spot market, procurement policy, stochastic dynamic programming
    JEL: C61 M11
    Date: 2011–07
  6. By: Ansgar Belke; Christian Dreger
    Abstract: The Greek government budget situation plays a central role in the debt crisis in the euro area. The debt to GDP ratio is above 150 percent, while the deficit to GDP ratio exceeds 10 percent. To re-establish the Maastricht criteria, respectively, strong consolidation measures need to be implemented, with potential adverse effects on the Greek economy, and further credit requirements. Therefore, a debt conversion might become a reasonable alternative. The aim of this paper is to provide some simulation-based calculations on the expected fiscal costs for the governments in the large European countries Germany, France, Spain and Italy arising from different policy options - among them a potential second Greek rescue package. Under realistic conditions, a debt conversion may be the less costly strategy for Greece and the euro area partner states. A value-added of these calculations lies in a potential transfer to smaller euro area member countries.
    Keywords: Euro area debt crisis, debt conversation, Greece
    JEL: F33 F34 H63
    Date: 2011
  7. By: Dora Balog (Department of Finance Corvinus University of Budapest)
    Abstract: Capital allocation is used for many purposes in financial institutions and for this purpose several methods are known. The aim of this paper is to review possible methods (we present six of them) and to help financial companies to choose between the methods. There are some properties that an allocation method should satisfy: full allocation, core compatibility, riskless allocation, symmetry and suitability for performance measurement (compatibility with Return on Risk Adjusted Capital calculation). If we think about practical application we should also consider simplicity of the methods. First we examine the methods from the point of view if they are satisfying core compatibility. We test this with simulation where we add to the existing literature that we test core compatibility with different assumptions on returns: on normal and t-distributed returns and also on returns generated from a copula. We find that if we measure risk by a coherent risk measure, the Expected Shortfall there are two methods satisfying core compatibility: the Euler method (that always fulfills the criteria) and cost gap method (obeys it around in about 99%). As Euler method is very easy to calculate even for many players while cost gap method becomes very complicated as the number of the players increases we examine further the properties of Euler method. We find that it fulfills all the above given criteria but symmetry and as aforementioned it is also very easy to calculate. Therefore we believe that the method might be suggested for practical applications.
    Keywords: Capital Allocation, Coherent Measures of Risk, Core, Simulation
    JEL: C60 C70 G20
    Date: 2011–06
  8. By: Landmann, Andreas; Vollan, Björn; Frölich, Markus
    Abstract: This paper analyzes data from a novel field experiment designed to test the impact of two different insurance products and a secret saving device on solidarity in risk-sharing groups among rural villagers in the Philippines. Risk is simulated by a lottery, risk-sharing is possible in solidarity groups of three and insurance is introduced via less risky lotteries. Our main hypothesis is that formal market-based products lead to lower transfers among network members. We also test for the persistence of this crowding-out of solidarity. We find evidence for a reduction of solidarity by insurance if shocks are observable. Depending on insurance design, there is also evidence for persistence of this effect even if insurance is removed. Simulations using our regression results show that the benefits of insurance are completely offset by the reduction in transfers. However, if secret saving is possible solidarity is very low in general and there is no crowding out effect of insurance. This suggests that introducing formal insurance is not as effective as it is hoped for when the monetary situation can be closely monitored, but that it might be a very important complement when savings inhibit observing financial resources. --
    JEL: C93 O12 Z13
    Date: 2011

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