Template-type: ReDIF-Paper 1.0 Title: Estimates of the Elasticity of Substitution Between Imported and Domestically Produced Commodities at the Four Digit ASIC Level Author-Name: Chris M. Alaouze Author-X-Name-First: Chris M. Author-X-Name-Last: Alaouze Author-Name: John S. Marsden Author-X-Name-First: John S. Author-X-Name-Last: Marsden Author-Name: John Zeitsch Author-X-Name-First: John Author-X-Name-Last: Zeitsch Abstract: This paper contains estimates made in 1977 of the elasticity of substitution between domestically produced and imported commodities at the four digit level of the Australian ASIC commodity classification then in use. The data upon which the estimates were based included series specially constructed for the Industries Assistance Commission from customs clearance records covering the period 1968-69 through 1974-75. Because this period contained a substantial movement in the real exchange rate for the Australian dollar, relatively large movements occur in the relative prices in Australia of the domestically produced and the competing imported commodities. Thus the sample period and data augured well for the estimation of Armington substitution elasticities, which was relatively successful. Note, however, that the data were not rich enough to obtain separate estimates for different sources of imports, nor for different intermediate and final uses of the commodities. The estimates served well, however, in the implementation of the ORANI model used in debate and policy formation in Australia during the 1980s. The four-digit ASIC data base used in this study was published in 1985 as Chris M. Alaouze (1985), "The Impact Trade Flow Data Base", Impact Project Working Paper No. I-24, Melbourne. This paper will be available on this web site in the reasonably near future. This data base also includes pressure of demand series for eight industry groups. These were included as regressors and found significant in the equations used to estimate the Armington elasticities for several commodities. (This abstract written in 2004 by Chris Alaouze and Alan Powell) Creation-Date: 1977-07 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/o-11.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:o-11 Template-type: ReDIF-Paper 1.0 Title: Stimulation of Employment in Neo-Classical Models Author-Name: Michael Malakellis Author-X-Name-First: Michael Author-X-Name-Last: Malakellis Author-Name: Matthew Peter Author-X-Name-First: Matthew Author-X-Name-Last: Peter Abstract: This paper explores the possibility of a Keynesian-like employment response in multi-sectoral neo-classical models such as the ORANI model of the Australian economy. One of the more controversial applications of ORANI has been its use in designing a macroeconomic policy package which stimulates employment without worsening the external account. This package involves restraining real wages while simultaneously increasing aggregate demand. As expected of a model with a neo-classical structure, real wage restraint boosts employment in ORANI. However, employment responds positively to an expansion in aggregate demand -- a result expected of a Keynesian rather than a neo-classical model. The conclusion is that relative price movements and compositional effects, which are entirely consistent with a neo-classical structure, explain the positive relationship between employment growth and aggregate demand in ORANI and kindred models.) Creation-Date: 1991-03 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/ip-49.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:ip-49 Template-type: ReDIF-Paper 1.0 Title: The Mathematical Programming Approach to Applied General Equilibrium Modelling: Notes and Problems Author-Name: Peter B. Dixon Author-X-Name-First: Peter B. Author-X-Name-Last: Dixon Abstract: The mathematical programming approach to applied general equilibrium analysis, although no longer the dominant tool, is still useful, from at least two points of view: (1) it neatly integrates into an economy-wide framework the microeconomic theory of the behaviour of agents constrained by inequalities; and (2) it provides a useful approach for computing the solutions of some general equilibrium problems not solvable with the current GEMPACK software (see, e.g., Dixon (1991), cited below on p. 16). The material contained in this paper was meant to be included in our graduate-level text (Peter B. DIXON, B.R. PARMENTER, Alan A. POWELL and P.J. WILCOXEN, Notes and Problems in Applied General Equilibrium Economics (Amsterdam: North-Holland, 1992), but space limitations led to our reluctant exclusion of it from the text. Publication in the Impact series will mean that those who find the approach in our textbook useful will be able to apply the same method towards mastering mathematical programming in a general equilibrium context. Creation-Date: 1991-04 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/i-50.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:i-50 Template-type: ReDIF-Paper 1.0 Title: Solving Nonlinear Economic Models Accurately Via a Linear Representation Author-Name: K.R. Pearson Author-X-Name-First: K.R. Author-X-Name-Last: Pearson Abstract: This paper focuses on one way a linearized representation of a nonlinear economic model can be used to obtain arbitrarily accurate solutions to simulations. The key is a method for translating a simulation problem directly to a so-called initial value problem. Since many different methods for solving initial value problems are known and well understood, and since each one converts to an algorithm for solving simulation problems, this insight greatly expands the computational tool kit for conducting simulations. This paper contains a survey of the theoretical results guaranteeing convergence and forming the basis for extrapolations of two important methods for solving initial value problems. Theoretical considerations suggest that the faster rate of convergence of one of these methods (the modified midpoint method) is likely to cause it to dominate the other (Euler's method) in many situations faced by applied general equilibrium modellers. The other main points of the paper are: (a) to emphasize that linearized (symbolic) representations of models lead naturally to efficient algorithms which can be used to compute solutions having any desired degree of precision; and (b) to suggest that such accurate methods (rather than Johansen's method) should be the default when solving models (especially applied general equilibrium models) represented in linearized form. Creation-Date: 1991-07 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/ip-55.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:ip-55 Template-type: ReDIF-Paper 1.0 Title: Using the Murphy Model to Provide Short-Run Macroeconomic Closure for ORANI Author-Name: James H. Breece Author-X-Name-First: James H. Author-X-Name-Last: Breece Author-Name: Keith R. McLaren Author-X-Name-First: Keith R. Author-X-Name-Last: McLaren Author-Name: Chris W. Murphy Author-X-Name-First: Chris W. Author-X-Name-Last: Murphy Author-Name: Alan A. Powell Author-X-Name-First: Alan A. Author-X-Name-Last: Powell Abstract: A macro model incorporating rational expectations in financial markets (the Murphy Model - MM) is used to endogenize the macroeconomic environment for a comprehensive general equilibrium model (ORANI). The interface exploits the existence of variables which are endogenous to both models, calibrating on a shock to government spending, which is the principal common exogeneity. The responses of the half-dozen doubly endogenous variables feature prominently in the calibration procedure, which minimizes any conflict between the stories told about these variables by the two models. Prospective benefits include: (1) to the numerous policy-oriented users of ORANI, a facility allowing the macroeconomic environment to be determined by a macrodynamic model such as MM; (2) to these users, reassurance that ORANI's short-run translates in calendar time to about two years; (3) to the clientele of a macro model, the possibility of much more detailed projections.. Creation-Date: 1991-07 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/ip-56.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:ip-56 Template-type: ReDIF-Paper 1.0 Title: Sato's Insight on the Relationship between the Frisch 'Parameter' and the Average Elasticity of Substitution Author-Name: Alan A. Powell Author-X-Name-First: Alan A. Author-X-Name-Last: Powell Abstract: This short note demonstrates that Sato's 1972 insight concerning the equivalence between Frisch's 'money flexibility' parameter and the average elasticity of substitution among commodities needs to be modified if it is to be applied to non-homothetic utility functions. Fortunately the modification is easily implemented. Creation-Date: 1992-01 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/g-99.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:g-99 Template-type: ReDIF-Paper 1.0 Title: The Contribution of Applied General Equilibrium Analysis to Policy Reform in Australia Author-Name: Alan A. Powell Author-X-Name-First: Alan A. Author-X-Name-Last: Powell Author-Name: Richard H. Snape Author-X-Name-First: Richard H. Author-X-Name-Last: Snape Abstract: Applied general equilibrium (GE) modelling is widely used by Australian federal government agencies involved in policy making. With the possible exception of Norway, this situation seems to be unique to Australia. The present paper traces the history of the IMPACT Project, an initiative of the Australian Industry (formerly Industries Assistance) Commission in association with a number of Australian universities, which has been instrumental in securing the widespread acceptance of the GE method in applied policy economics. We note, inter alia, that the largest loser from Australia's manufacturing protectionism, namely her export-oriented farm sector, has adopted the GE approach in pressing its case to government. We ask the question: 'To what extent has applied GE modelling been influential in achieving the turn around in Australia's stance to commercial policy?' We present the relevant evidence in abbreviated form, but leave the answer to the reader. Creation-Date: 1992-01 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/g-98.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:g-98 Template-type: ReDIF-Paper 1.0 Title: Flexibly Nested Production Functions: Implementation for MONASH Author-Name: R.A. McDougall Author-X-Name-First: R.A. Author-X-Name-Last: McDougall Abstract: This paper describes the implementation for the MONASH model of a scheme for flexible nesting of production functions. The scheme supports substitution in production between different commodities and between commodities and primary factors, which the standard ORANI production system does not. Thus it supports more flexible functional forms than standard ORANI. More importantly, this treatment supports not just a single functional form but a wide variety of functional forms, built up by the nesting of CES aggregator functions. The number of CES aggregator functions, their membership, and the depth of nesting are all arbitrary. These features of the nesting structure are now specified not in the theoretical structure in the database. Thus the production structure can readily be modified to meet the special requirements of individual applications. We illustrate the use of the flexible nesting treatment with an application to inter-fuel and energy-capital substitution. Creation-Date: 1992-06 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/ip-57.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:ip-57 Template-type: ReDIF-Paper 1.0 Title: An Implicitly Directly Additive Demand System: Estimates for Australia Author-Name: Maureen T. Rimmer Author-X-Name-First: Maureen T. Author-X-Name-Last: Rimmer Author-Name: Alan A. Powell Author-X-Name-First: Alan A. Author-X-Name-Last: Powell Abstract: The problem of endowing large applied general equilibrium models with numerical values for parameters is formidable. For example, a complete set of own- and cross-price elasticities of demand for the ORANI model involves 228 squared, or about 60 K items. Invoking the minimal assumptions that demand is generated by utility maximization reduces the load to about 26 K -- obviously still a number much too large for unrestrained econometric estimation. To obtain demand systems estimates for a dozen or so generic commodities at a top level of aggregation (categories like 'food', 'clothing and footwear', ...), typically Johansen's (1960) lead has been followed, and directly additive preferences imposed upon the underlying utility function. With the move beyond one-step linearized solutions of the ORANI model, the functional form of the demand system adopted becomes an issue. The most celebrated of the additive-preference demand systems, Stone's (1954) linear expenditure system (LES), has one drawback for empirical work; namely, the constancy of marginal budget shares (MBSs) -- a liability shared with the Rotterdam system (Barten, 1964, 1968; Theil, 1965, 1967). To get around this, Theil and Clements (1987) used Holbrook Working's (1943) Engel specification in conjunction with additive preferences; unfortunately both Working's formulation and Deaton and Muellbauer's (1980) AIDS have the problem that, under large changes in real incomes, budget shares can stray outside the [0,1] interval. It was such behaviour that led Cooper and McLaren (1987, 1988, 1991, forthcoming 1992) to invent MAIDS, a system with better regularity properties. MAIDS, however, is not globally compatible with any additive preference system. In this paper we specify, and estimate, at the six-commodity level, an implicitly directly additive-preference demand system which allows MBSs to vary as a function of total real expenditure and which is globally regular throughout that part of the the price-expenditure space in which the consumer is at least affluent enough to meet subsistence requirements. Classification-JEL: D12, C68 Creation-Date: 1992-10 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/op-73.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:op-73 Template-type: ReDIF-Paper 1.0 Title: Demand Patterns Across the Development Spectrum: Estimates for the AIDADS System Author-Name: Maureen T. Rimmer Author-X-Name-First: Maureen T. Author-X-Name-Last: Rimmer Author-Name: Alan A. Powell Author-X-Name-First: Alan A. Author-X-Name-Last: Powell Abstract: This is a companion paper to Impact Preliminary Working Paper No OP-73 in which Rimmer and Powell report on a new implicitly directly additive demand system (AIDADS) which (in Cooper and McLaren's 1992b terminology) is effectively globally regular. In OP-73 AIDADS is fitted to a six-commodity disaggregation of a 35-year Australian time series of consumption. Unlike the linear expenditure system and the Rotterdam model, the new system allows marginal budget shares to vary as a function of income. In the current paper we also work at a six-commodity level, fitting AIDADS to an international cross section of 30 countries in 1975. The data are from the International Comparisons Project of Kravis, Heston and Summers (1982) and previously were analyzed by Theil and Clements (1987) using a combination of additive preferences and Working's (1943) model in differential form. The present results overcome two potential shortcomings of the earlier work by replacing Working's model with a more regular specification of Engel effects and by providing and estimating an explicit functional form in the levels of the variables. A rough comparison can be made between the time-series estimates of OP-73 and the cross-sectional ones reported here. We found the two sets of results broadly consistent (although the rate of decline in Food's marginal budget share was less in the Australian time series than in the international cross section). Overall, the new system performed well empirically. It seems suitable for modelling demand for broad consumption aggregates (say up to about a dozen commodities) in situations in which there may be very large variations in income per head. Classification-JEL: D12, C68 Creation-Date: 1992-10 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/op-75.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:op-75 Template-type: ReDIF-Paper 1.0 Title: Two Short Papers Detailing Enhancements to FH-ORANI Author-Name: R.A. McDougall Author-X-Name-First: R.A. Author-X-Name-Last: McDougall Abstract: This document contains two short papers on the theoretical structure of FH-ORANI. The first paper is concerned with local ownership shares for fixed capital in individual industries. The second is concerned with the taxation of earnings of fixed capital. Each paper identifies shortcomings in the current treatment, proposes a new treatment, describes its computer implementation, and presents illustrative simulation results. The first paper proposes two changes relating to local ownership of fixed capital. * In calculating industry shares in aggregate capital stocks, we assume uniformity across industries not in pre-tax rates of return, but in post-tax rates. * In determining local ownership shares for individual industries, we do not assume changes in shares to be uniform across industries, but do require them to be jointly consistent with the change in the economy-wide average local ownership share. Illustrative simulation results show that the new treatment greatly increases the sensitivity of foreign income payments to changes in the economy-wide local ownership share. The second paper proposes several changes relating to taxation of earnings of fixed capital. * Tax reductions arising from depreciation and investment allowances are not apportioned between fixed capital, working capital, and land, but are allocated entirely to fixed capital. * The share of tax on earnings of fixed capital in total tax on non-labour income is not fixed, but varies in response to changes in the composition of non-labour income. * Investors treat the reduction in tax arising from the investment allowance not as an augmentation to their income, but as a partial offset to the purchase cost of capital. Illustrative simulation results show that the new treatment greatly increases the sensitivity of capital usage to changes in the depreciation and investment allowance. Creation-Date: 1992-12 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/op-71.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:op-71 Template-type: ReDIF-Paper 1.0 Title: Short-Run Effects of A Carbon Tax Author-Name: R.A. McDougall Author-X-Name-First: R.A. Author-X-Name-Last: McDougall Abstract: This paper presents estimates of short-run sectoral and economy-wide effects of the introduction of a carbon tax in Australia. The results are derived using an enhanced version of the ORANI multi-sectoral model of the Australian economy. We simulate the introduction of a carbon tax at a rate of 1991-92 $25 per tonne, designed to achieve the Toronto target of a 20 per cent reduction in carbon dioxide emissions below the 1988 level by 2005. We find that the macroeconomic impact would depend critically on the extent to which price rises flowed through into wage rates. Assuming fixed money wages, real GDP would be decreased by an estimated 0.9 per cent, and employment by 1.2 per cent. To maintain a given employment level in the face of the carbon tax would require a reduction in the foreign-currency-equivalent wage rate estimated at 2.8 per cent. This would also entail a decrease in the real wage rate (defined with respect to the consumption price deflator) of 2.8 per cent. Government could promote lower wage outcomes by returning the carbon tax revenue to the community through reductions in other taxes. Enhancements to ORANI used in this simulation include disaggregation of the fossil fuel sector and provision for carbon taxation. Creation-Date: 1993-06 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/g-100.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:g-100 Template-type: ReDIF-Paper 1.0 Title: Some Short-Run Implications of Fightback: A General Equilibrium Analysis Author-Name: G.A. Meagher Author-X-Name-First: G.A. Author-X-Name-Last: Meagher Author-Name: Brian R. Parmenter Author-X-Name-First: Brian R. Author-X-Name-Last: Parmenter Abstract: We report ORANI projections of the short-run effects on the macroeconomy and the industrial structure of the main elements of the Fightback proposals, namely the proposed abolition of the wholesale sales tax, petroleum excise and the payroll tax, proposed cuts in income taxes and government outlays, and the proposed introduction of the goods and services tax. In making the projections, we assume (with Fightback) that nominal wage rates are unaffected. We also assume that private domestic aggregate demand moves in line with changes in disposable income. These fiscal changes fall into two main groups changes in indirect taxes which affect relative prices directly, and changes to income tax rates and government outlays which have their direct impacts on the level and commodity composition of domestic demand. Analysis of the second group is relatively straightforward. Cuts in income taxes increase private-sector demand, crowding out exports but generating a net increase in output and employment. Cuts in government outlays reduce public and private demand, allowing exports to expand but generating a net contraction of output and employment. Because public demand is concentrated on labour-intensive commodities, the contractionary employment effect of cuts in outlays is greater, per dollar of change, than is the expansionary effect of the income tax cuts. Differences in the macroeconomic effects of the indirect-tax components of the package depend on: (a) differences between the taxes in the effects of imposing a dollar's worth of tax on any given industry; (b) differences in the industrial incidences of the taxes; and (c) differences in the sizes of the tax changes. The payroll tax affects the cost of employing labour directly. It therefore has a greater effect in any given industry on employment per dollar of tax change than does the wholesale sales tax, the petroleum excise or the goods and services tax. The GST does not discriminate between imports and domestic commodities and affects exports in only a minor indirect way. Hence, its impact on cost-sensitive industries exposed to international competition is smaller than the impacts of the other taxes, especially the payroll tax. Hence, the implications of the GST for output and employment are relatively small. Our translation of proposals from the Fightback document into shocks for our model is not without some difficulties. The appropriate size of the income tax cuts is one especially controversial issue. We present sufficient information in the paper to allow the reader to perform some sensitivity analysis. For example, to see the effects of assuming that income tax cuts are worth $10billion rather than the $13billion which we impose, the income tax columns in our tables should be scaled down by a factor of 10/13. Substitution of the goods and services tax for the wholesale sales tax, petroleum excise and the payroll tax is a major feature of the Fightback package. Because employment is less sensitive to the cost effects of the goods and services tax than it is to those of the taxes which are replaced, our major conclusion is that the package would generate increases in employment and GDP in the short run. However, our projections also imply that, without adjustments to nominal wage rates, the package would lead to a reduction in the real value of the take-home wage rate. When nominal wage rates are adjusted to maintain the real value of disposable income per unit of employment, the expansionary effects of the package on employment and the GDP are substantially reduced, but not entirely eliminated. Creation-Date: 1993-07 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/g-101.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:g-101 Template-type: ReDIF-Paper 1.0 Title: Import Price and Activity Elasticities for the MONASH Model: Johansen FIML Estimation of Cointegration Vectors Author-Name: Jayant Menon Author-X-Name-First: Jayant Author-X-Name-Last: Menon Abstract: This study investigates the relationship between manufactured import flows to Australia and relative prices and domestic economic activity over the period 1981Q3 to 1992Q2. This is done through the estimation of import demand functions for total manufactured imports and 29 import product categories defined at the 2-digit level of the AICC by employing the Johansen FIML procedure. The price and activity elasticities will form part of the elasticity files of the MONASH Model, currently being developed at the Centre of Policy Studies. The price elasticities range from 0.24 to 1.75, with a weighted-average of 0.60. We also find evidence of upward bias in price elasticity estimates when an aggregate import function is employed in a context where variation in prices of individual products are negatively correlated with their price elasticities, and when a significant portion of imports are subject to quantitative restrictions (QRs). The unit activity elasticity hypothesis was accepted for one third of our sample. The majority of activity elasticities are greater than one, and usually closer to two. Creation-Date: 1993-07 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/ip-58.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:ip-58 Template-type: ReDIF-Paper 1.0 Title: Exchange Rate Pass-Through for Australian Manufactured Imports: Estimates from the Johansen Maximum-Likelihood Procedure Author-Name: Jayant Menon Author-X-Name-First: Jayant Author-X-Name-Last: Menon Abstract: This paper estimates exchange rate pass-through for Australian manufactured imports by applying an econometric procedure which avoids the pit-falls in previous studies to a carefully assembled data set. For the first time, we provide estimates of pass-through based on the Johansen (1988) ML procedure. Our finding of incomplete pass-through has important implications for policy and the macroeconomy. Incomplete pass-through brings into question the validity of the "small" country assumption and the exogeneity of the terms of trade with respect to exchange rate changes. We may also have to reconsider the extent of the apparent inflationary (deflationary) consequences of exchange rate depreciations (appreciations), and the effects of exchange rate variability on international trade flows. Classification-JEL: F31 Creation-Date: 1993-07 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/ip-60.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:ip-60 Template-type: ReDIF-Paper 1.0 Title: Integrating Econometric and Environmetric Modelling Author-Name: Alan A. Powell Author-X-Name-First: Alan A. Author-X-Name-Last: Powell Abstract: This paper is organized around brief accounts of two modelling initiatives, one with an Australian and the other with a global focus, which have contributed to the policy debate about greenhouse gas abatement. The Australian study involved the combined use of an energy technology programming model, MENSA/MARKAL, with an applied general equilibrium model of the Australian economy, ORANI-F. This interfaced suite of models was used to inform the Australian government's consultations on environmentally sustainable development. The second study involves the Global 2100 model, which also uses a mathematical programming model of energy technology, but couples it to a macro, rather than an applied general equilibrium model. The latter study is one of several, each based on a different model, used as an input to OECD deliberations on greenhouse. After giving brief accounts of the interfaces between the environmetric and economic component modules of ORANI-F\MENSA/MARKAL and of Global 2100 and a synopsis of what insights into global warming have come out of these models, I set out my ideas about how better interfaces between econometric and environmetric models can be achieved. These suggestions relate more to the 'culture' of modelling than to technicalities. It seems that the technical (often model-specific) problems encountered at the interfaces will be more tractable if everyone involved adopts the same computer modelling language and standards of documentation. Modellers from both sides will have to discipline themselves to keep their component models down to a size that allows the interfaced system to be solved using computer resources that are routinely available. Creation-Date: 1993-11 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/g-102.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:g-102 Template-type: ReDIF-Paper 1.0 Title: The International Comparison Project as a Source of Private Consumption Data for a Global Input-Output Model Author-Name: G.A. Meagher Author-X-Name-First: G.A. Author-X-Name-Last: Meagher Abstract: In 1989 a major project entitled "Strategies for Environmentally Sound Economic Decelopment" was inaugurated under the sponsorship of the United Nations. This project is designed to identify ways of alleviating pressures on the global environment and, at the same time, raise the standard of living of the poorest countries. The central component of its analytical framework is a dynamic global input-output model (GIOM) that describes trade between 15 regions in about 50 commodities, taking as its starting point the well known 1977 World Input-Output Model of Leontief, Carter and Petri. The purpose of the present paper is twofold. Firstly, it describes a contribution to the compilation of a database for the GIOM. In particular, it draws on data collected by the United Nations' International Comparison Project (ICP) to provide estimates of private consumption expenditure for 1980, the base period for the model. Secondly, it uses these estimates as a case study to examine the implications of using different price systems for each country, rather than a common set of prices, to determine expenditures on composite commodities. In preparing data for multisectoral global models, it is common practice to collect expenditure data evaluated in local (national) prices and convert to world prices using published exchange rates. The analysis of this paper suggests that, when commodities produced in different countries are treated as perfect substitutes in the model, the practice may seriously compromise the model's results. Classification-JEL: C67, C81, F10, O21 Creation-Date: 1993-12 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/ip-62.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:ip-62 Template-type: ReDIF-Paper 1.0 Title: Water Pricing and investment in Melbourne: General Equilibrium Analysis with Uncertain Stream Flow Author-Name: J. Mark Horridge Author-X-Name-First: J. Mark Author-X-Name-Last: Horridge Author-Name: Peter B. Dixon Author-X-Name-First: Peter B. Author-X-Name-Last: Dixon Author-Name: Maureen T. Rimmer Author-X-Name-First: Maureen T. Author-X-Name-Last: Rimmer Abstract: We describe the theory, computation and results of a multiperiod general equilibrium model designed to assist an urban water authority in its pricing and investment decisions. The model includes gestation periods in the creation of dams, main sewers and treatment plants. It allows for lumpy capital items and recognizes cost differences in the provision of services in peak and non-peak times. Its general equilibrium framework is convenient for handling links between the water authority and the rest of the economy, especially the housing sector. We have used two computational approaches. In the first, we reformulate the model as a single-entity optimization problem and then apply a linear programming package. We have found that a better approach is to apply Newton-Raphson methods to a formulation of the model as a set of equations depicting purely competitive behaviour in all productive activities. A special feature of this paper is an integration of the model's results, obtained under the assumption of certainty, with data on weather-induced variations in streamflow and demand. Using Monte Carlo techniques we assess the risks of water shortages associated with the investment and pricing strategies that our model indicates. Creation-Date: 1993-12 Keywords: water pricing and investment uncertain streamflow water policy in a general equilibrium model water policy for Melbourne linear programming Newton-Raphson Monte Carlo peak and non-peak File-URL: http://www.monash.edu.au/policy/ftp/workpapr/ip-63.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:ip-63 Template-type: ReDIF-Paper 1.0 Title: The Use of the ORANI Model in the Immigration Debate Author-Name: Matthew W. Peter Author-X-Name-First: Matthew W. Author-X-Name-Last: Peter Abstract: This paper presents the theoretical specification of the MONASH-MRF model. MONASH-MRF is a multiregional multisectoral model of the Australian economy. Included is a complete documentation of the model's equations, variables and coefficients. The documentation is designed to allow the reader to cross-reference the equation system presented in this paper in ordinary algebra, with the computer implementation of the model in the TABLO language presented in CoPS/IMPACT Preliminary Working Paper No. OP-82. Classification-JEL: C68, D58, R10, R13 Creation-Date: 1993-12 Keywords: multiregional, regional modelling, CGE, regional and Federal government finances File-URL: http://www.monash.edu.au/policy/ftp/workpapr/g-103.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:g-103 Template-type: ReDIF-Paper 1.0 Title: Energy Taxes and Greenhouse Gas Emissions in Australia Author-Name: R.A. McDougall Author-X-Name-First: R.A. Author-X-Name-Last: McDougall Abstract: A feature of recent policy discussion both in Australia and overseas has been a heightened interest in energy taxes and fuel taxes of various kinds. These taxes have been advocated on various grounds, notably their role in discouraging greenhouse gas emissions. At the same time, at least in Australia, greenhouse policy discussion has been redirected more towards small-scale sector-specific interventions, and away from economy-wide measures such as a carbon tax. In this context it becomes of interest to ask, how effective might an energy tax be in reducing carbon emissions? Here we use the term energy tax to mean fossil fuel taxes excluding carbon taxes. A carbon tax is levied on carbon dioxide emissions or some closely related basis, while an energy tax is levied on some other basis such as energy content. The paper presents simulation results designed to address these questions. The simulations are performed using the ORANI model of the Australian economy, in a version containing several energy-specific enhancements. These include greater detail on energy production and use in the database, and a wider range of substitution possibilities in energy production and use in the theoretical structure. The database enhancements include extensive disaggregation of the two largest parts of the energy sector, fossil fuels and electricity. The theoretical developments cover substitution between energy and capital, between different sources of energy, between different techniques of generating electricity, and between different modes of transport. We find that a broad-based energy tax would be comparable in effectiveness to a carbon tax in reducing greenhouse gas emissions. This is because like the carbon tax it would bear heavily on the cheaper fossil fuels and would induce emission abatement through fuel switching. Taxes such as a petroleum products tax which excluded the cheaper fossil fuels would be much less effective. Creation-Date: 1993-12 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/g-104.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:g-104 Template-type: ReDIF-Paper 1.0 Title: Trade Liberalization and Intra-Industry Specialization: The Australian Experience Author-Name: Jayant Menon Author-X-Name-First: Jayant Author-X-Name-Last: Menon Abstract: Much of the growth in trade among the industrialised countries, and more recently among countries in the Asia-Pacific region, has taken the form of intra-industry trade (IIT). Australia has historically had one of the lowest shares of IIT among OECD countries. This paper examines how Australia's IIT has changed in the 1980s in response to the process of trade liberalisation and completion of the CER pact with New Zealand. Towards this end, IIT indexes are estimated for Australia's multilateral and trans-Tasman trade for 1981 and 1991 for 132 industries using data at the 3 and 4-digit level of the SITC. The results point to a sharp increase in the share of IIT for both multilateral and trans-Tasman trade. We also find that the industries that had undergone the largest reductions in protection levels had also increased their shares of IIT quite considerably. These findings suggest that the short to medium run adjustment costs associated with trade liberalisation are likely to be lower than expected as a result of increased intra-industry specialisation. If IIT continues to grow in response to the on-going process of internationalisation of the Australian economy, then Australia's prospects for expanding its share in world trade, and particularly in the Asia-Pacific region, are likely to be significantly boosted. Creation-Date: 1994-06 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/g-107.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:g-107 Template-type: ReDIF-Paper 1.0 Title: Flexible Exchange Rates and Traded Goods Prices: A Theory of the Short-Run Author-Name: Jayant Menon Author-X-Name-First: Jayant Author-X-Name-Last: Menon Abstract: The volatility displayed by floating exchange rates has revived interest in the relationship between exchange rates and traded goods prices. This paper aims to provide a theory of exchange rates and traded goods prices in the short-run. In particular, it examines how various factors can cause exchange rate pass-through to be incomplete in the short-run but not in the long-run. These include: (i) menu costs, (ii) the costs of changing supply, (iii) the dynamics of demand response to price changes, (iv) order-delivery lags, (v) forward exchange cover, and (vi) the currency denomination of trade contracts. From a policy perspective, the presence of these factors could account for the often prolonged adjustment of trade balances to exchange rate changes, and the failure of exchange rate volatility to perceptibly affect the volume of international trade flows. Creation-Date: 1994-06 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/g-108.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:g-108 Template-type: ReDIF-Paper 1.0 Title: How Important is Intra-Industry Trade in Australia's Rapid Trade Growth? Author-Name: Jayant Menon Author-X-Name-First: Jayant Author-X-Name-Last: Menon Author-Name: Peter B. Dixon Author-X-Name-First: Peter B. Author-X-Name-Last: Dixon Abstract: Empirical work on intra-industry trade (IIT) is almost 30 years old. Initial research sought to identify if IIT was a significant share of total trade (TT). The Grubel-Lloyd (GL) index was widely used for this purpose, since it provides a relatively reliable measure of the importance of IIT at any point in time. Interest has since shifted to the changing importance of IIT over time, particularly with the emergence of regional trading blocks. Previous researchers have used movements in the GL index to infer the importance of IIT over time. This is not only vague, but can be misleading. In this paper, we show how to measure the contributions of net trade (NT) and IIT to the growth in TT. To understand changes in IIT over time, we also derive the contributions of imports and exports to the growth in TT, NT and IIT. All our formulas are illustrated with data for 205 Australian manufacturing industries defined at the 3- and 4-digit level of the SITC for the periods 1981 to 1986 and 1986 to 1991. The results show that while almost all the growth in TT was driven by NT between 1981 and 1986, IIT contributes almost half the sharp growth in TT between 1986 and 1991. The dominant contribution of NT between 1981 and 1986 was mainly a result of import growth, while the increase in the contribution of IIT between 1986 and 1991 was almost solely due to export growth. Classification-JEL: F31, F32 Creation-Date: 1994-06 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/g-110.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:g-110 Template-type: ReDIF-Paper 1.0 Title: Engel Flexibility in Household Budget Studies: Non-parametric Evidence versus Standard Functional Forms Author-Name: Maureen T. Rimmer Author-X-Name-First: Maureen T. Author-X-Name-Last: Rimmer Author-Name: Alan A. Powell Author-X-Name-First: Alan A. Author-X-Name-Last: Powell Abstract: At least since the mid-1970s, the emphasis in applied demand analysis has been on a flexible specification of substitution effects. Recent theoretical work by Cooper and McLaren (1992a, 1992b and 1996) and Cooper, McLaren and Parameswaran (1994) has put more emphasis on effectively globally regular systems which allow greater flexibility in the treatment of Engel effects. However, current empirical work continues to use a relatively inflexible treatment of Engel effects. Following Lewbel's (1991) lead, in the present paper we attempt to evaluate the need for a more flexible treatment by examining Engel effects in the Australian Household Expenditure Survey for 1988-89 from an agnostic position in which the form of the Engel response is entirely data-determined. We do this using non-parametric procedures in the statistical package S-Plus. Contrary to common practice (and confirming Lewbel's empirical results for U.K. and U.S. data), we find evidence of non-monotonic responses of budget shares with increasing income. This argues in favour of more flexible forms for Engel curves such as those explored in recent work by Cooper and McLaren (1996) and by Rimmer and Powell (1992a, 1992b and 1996). Using the same methodology, we also carry out a brief exploration of the influence of demographic effects on household Engel responses. Creation-Date: 1994-06 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/op-79.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:op-79 Template-type: ReDIF-Paper 1.0 Title: Applied General Equilibrium Modelling: Achievement, Failure and Potential Author-Name: Peter B. Dixon Author-X-Name-First: Peter B. Author-X-Name-Last: Dixon Abstract: Over the last twenty years, applied general equilibrium models (AGEMs) have provided useful insights on the likely effects of disturbances in one part of the economy on activity in other parts; e.g. the effects of changes in manufacturing protection on exports of mineral products. On the other hand, AGEM-based analyses of the welfare effects of proposed policy changes have been unconvincing. Nor have forecasts derived from AGE models provided satisfactory guidance to people concerned with investment and other business decisions. This paper explains these views and discusses the research required to move AGE modelling closer to its full potential. Creation-Date: 1994-06 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/g-106.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:g-106 Template-type: ReDIF-Paper 1.0 Title: The Macroeconomic, Industrial, Distributional and Regional Effects of Government Spending Programs in South Africa Author-Name: J. Mark Horridge Author-X-Name-First: J. Mark Author-X-Name-Last: Horridge Author-Name: Brian R. Parmenter Author-X-Name-First: Brian R. Author-X-Name-Last: Parmenter Author-Name: Martin Cameron Author-X-Name-First: Martin Author-X-Name-Last: Cameron Author-Name: Riaan Joubert Author-X-Name-First: Riaan Author-X-Name-Last: Joubert Author-Name: Areef Suleman Author-X-Name-First: Areef Author-X-Name-Last: Suleman Author-Name: Dawie de Jongh Author-X-Name-First: Dawie de Author-X-Name-Last: Jongh Abstract: A computable general equilibrium model of the South African economy (IDC-GEM) is outlined. The model is used to analyse the effects on the economy of increases in government spending such as are at the core of the new government's Reconstruction and Development Program. The analysis concentrates on the implications of alternative methods of finance for the program. Results are reported for macroeconomic variables, for the prospects of industries and regions, and for income distribution. Classification-JEL: C68, D31, E62, O55, R13 Creation-Date: 1995-04 Keywords: economic modelling, South Africa, government spending, income distribution, industrial effects, regional effects, macroeconomic effects File-URL: http://www.monash.edu.au/policy/ftp/workpapr/g-109.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:g-109 Template-type: ReDIF-Paper 1.0 Title: Regional Trading Arrangements and Intra-Industry Trade: The Case of ANZCERTA Author-Name: Jayant Menon Author-X-Name-First: Jayant Author-X-Name-Last: Menon Author-Name: Peter B. Dixon Author-X-Name-First: Peter B. Author-X-Name-Last: Dixon Abstract: Empirical work on intra-industry trade (IIT) is almost 30 years old. From the earliest analyses of IIT, the phenomenon has been associated with Regional Trading Agreements (RTAs). An important motivation for this research is associated with the issue of adjustment costs; if most of the growth in trade resulting from the RTA is attributable to IIT, then the resource re-allocation costs in the short to medium term are likely to be lower. This is because IIT does not require inter-industry factor movements. In attempting to determine whether RTAs are associated with increases in IIT, previous researchers have looked at two questions:(i) whether IIT has increased following the formation of the RTA, and (ii) whether IIT is more important in intra versus extra RTA trade. To answer the first question, researchers have used movements in the value of the Grubel and Lloyd (1975, GL) index over time, while the second has been dealt with by comparing the value of the GL index for intra versus extra RTA trade. Employing the GL index in these ways to answer these questions can lead to error. In this paper, we develop a new methodology for analysing both of these questions which overcomes the problems associated with using the GL index. First, we derive a formula which decomposes the growth in total trade (TT) into the contributions of growth in IIT and net trade (NT). Second, we show how to measure the contributions of intra and extra RTA trade to the growth in a country's total multilateral IIT and NT. The focus of our study is on the effects of the Australia-New Zealand Closer Economic Relations Trading Agreement (ANZCERTA) on Australian and New Zealand trade. All our formulas are computed with data for 130 Australian and New Zealand manufacturing industries defined at the 3-digit level of the Standard International Trade Classification (SITC) for the periods 1981 to 1986 and 1986 to 1991. Classification-JEL: F32, F17 Creation-Date: 1995-04 Keywords: intra-industry trade, regional trading agreements, adjustment costs File-URL: http://www.monash.edu.au/policy/ftp/workpapr/g-114.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:g-114 Template-type: ReDIF-Paper 1.0 Title: Coordinating Policies for Human Resources Development Author-Name: G.A. Meagher Author-X-Name-First: G.A. Author-X-Name-Last: Meagher Abstract: In its recent White Paper on Employment and Growth, the Australian Government announced a comprehensive new agenda to supplement its existing employment policies. It includes the following major elements * reforms to labour market assistance; * training and education reforms; * a reconstructed social security system; * a regional strategy; * workplace agreements; and * microeconomic reforms. An important consideration in the implementation of such a multi-faceted policy program is that its various elements are not independent of each other. While the Government has been at pains to ensure that the program is coherent in a qualitative sense, its quantitative assessment of the interdependencies between the program's elements has been limited. In this paper, we consider some of the issues associated with coordinating policies for human resources development, using the White Paper and the National Vocational Education and Training (VET) Strategy to provide a context for the discussion. In particular, we review the role of the MONASH forecasting system as a vehicle for coordinating the training plans of decentralised advisory bodies within the National VET Strategy. We also describe how the system can be used to delineate interdependencies in the Government's program, and include a quantitative assessment of effects of proposed microeconomic reforms on the demand for labour in particular occupations. Classification-JEL: C68, D58, E47, I20, J21 Creation-Date: 1996-03 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/g-118.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:g-118 Template-type: ReDIF-Paper 1.0 Title: Future Workforce Skills: Projections with the MONASH Model Author-Name: G.A. Meagher Author-X-Name-First: G.A. Author-X-Name-Last: Meagher Author-Name: B.R. Parmenter Author-X-Name-First: B.R. Author-X-Name-Last: Parmenter Abstract: Since 1993 the Centre of Policy Studies has been using the MONASH model to produce year-by-year forecasts for the Australian economy, typically with forecast horizons of about ten years. MONASH is a large dynamic applied general equilibrium model. The MONASH forecasting system takes as inputs macro-economic forecasts from Syntec Economic Services, forecasts for the agricultural and mining sectors from the Australian Bureau of Agricultural and Resource Economics, forecasts for international tourism from the Bureau of Tourism Research, and scenarios on technical change from extrapolations of recent historical experience. The MONASH model then produces consistent forecasts for 112 industries, 56 regions and 282 occupations. The occupational forecasts give projections of the demand for the ASCO unit groups in each of the six Australian States. These forecasts provide a background for assessing the skills likely to be required in the Australian workforce in the next decade. In this paper we report a selection of our most recent (as at February 1995) forecasts for occupations, and explain how they relate to the macroeconomic and industrial dimensions of the overall forecasts. Classification-JEL: C68, D58, E47, I20, J21 Creation-Date: 1996-03 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/g-116.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:g-116 Template-type: ReDIF-Paper 1.0 Title: Economic Modelling and the National Strategy for Vocational Education and Training Author-Name: G.A. Meagher Author-X-Name-First: G.A. Author-X-Name-Last: Meagher Author-Name: B.R. Parmenter Author-X-Name-First: B.R. Author-X-Name-Last: Parmenter Abstract: In 1994, the Australian National Training Authority (ANTA) was established by agreement between the Commonwealth, State and Territory governments. Central to the agreement is the National Strategy for Vocational Education and Training (VET) which is organized around the four main themes of responsiveness, quality, accessibility and efficiency. To promote efficiency in the allocation of training resources, ANTA and a number of State government agencies responsible for VET planning take into account employment forecasts generated using the MONASH model of the Australian economy. To promote responsiveness to the needs of industry, a network of industry training and advisory bodies (ITABs) has been set up. The ITABs' responsibilities include the development of "industry-credible, high-quality industry training plans as frameworks for identifying training needs in each industry, and for considering resource requirements". In this paper we review some of the issues that arise in reconciling the information produced at these diverse levels of planning. In particular, we consider the role of the MONASH forecasting system as a planning framework for vocational education and training, and the caveats that must be borne in assessing the performance of the system in this role. Classification-JEL: C68, D58, E47, I20, J21 Creation-Date: 1996-03 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/g-117.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:g-117 Template-type: ReDIF-Paper 1.0 Title: Compositional Data Analysis and Zeros in Micro Data Author-Name: Jane M. Fry Author-X-Name-First: Jane M. Author-X-Name-Last: Fry Author-Name: Tim R.L. Fry Author-X-Name-First: Tim R.L. Author-X-Name-Last: Fry Author-Name: Keith R. McLaren Author-X-Name-First: Keith R. Author-X-Name-Last: McLaren Abstract: The application of compositional data analysis methods in economics has some attraction. In particular, this methodology ensures that the stochastic component of budget share models will satisfy the restriction of shares to the unit simplex. The methodology relies upon the use of log-ratios in the statistical analysis. Such an approach is not possible when the data to be analyzed includes observations where the observed budget share is zero. We therefore extend the methods of compositional data analysis to the situation where the data to be analyzed includes observations where the observed budget share is zero. The modified compositional data methods are discussed both in statistical terms and through potential economic interpretations of the method. Further, the modified methodology is applied to the 1988 Australian Household Expenditure Survey yielding estimates for a system of Engel curves. Classification-JEL: C51, D12 Creation-Date: 1996-03 Keywords: Engel Curves, Modified Almost Ideal Demand System, Composi- tional Data Analysis, Australian H E S data File-URL: http://www.monash.edu.au/policy/ftp/workpapr/g-120.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:g-120 Template-type: ReDIF-Paper 1.0 Title: Economies of Scale and Imperfect Competition in an Applied General Equilibrium Model of the Australian Economy Author-Name: Kaludura Abayasiri-Silva Author-X-Name-First: Kaludura Author-X-Name-Last: Abayasiri-Silva Author-Name: Mark Horridge Author-X-Name-First: Mark Author-X-Name-Last: Horridge Abstract: Recently some researchers have suggested that economies of scale and imperfect competition play a major role in determining the effects of exogenous policy shocks. Thus they have emphasised the need to incorporate industrial organisation features into computable general equilibrium (CGE) models. However, our knowledge of this new paradigm is still in its infancy it is not yet clear how models of this type should be specified and to what extent their predictions are sensitive to the choice of specification. This paper describes a 23-sector CGE model of the Australian economy, based on ORANI and on Horridge (1987a and 1987b), which incorporates economies of scale and imperfect competition. The model is used to investigate whether adding these new features affects simulation results. We present results for three different types of non-competitive regime and compare these with results generated by a traditional (constant returns and perfect competition) version of the same model. Classification-JEL: C68, L11, L13 Creation-Date: 1996-03 Keywords: Economies of scale, imperfect competition, applied general equilibrium models File-URL: http://www.monash.edu.au/policy/ftp/workpapr/op-84.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:op-84 Template-type: ReDIF-Paper 1.0 Title: The Medium Term Outlook for Labour Demand: An Economy Wide Assessment Author-Name: G.A. Meagher Author-X-Name-First: G.A. Author-X-Name-Last: Meagher Abstract: This paper presents a detailed assessment of the medium term outlook for the demand for labour in Australia. Forecasts are reported for employment by industry, by occupation, by State and Territory, by hours worked and by skill level. The forecasts are driven, in the first instance, by a fully articulated view about the outlook for the macroeconomy. This macro view is then combined with projections for various industry specific variables prepared by relevant expert organisations. Coherence between the different sources is ensured by incorporating them in a single simulation using the MONASH model, a large applied general equilibrium model of the Australian economy. In deriving the forecasts, attention has been paid to the effect of technological and social change on the structure of the economy in recent years, and to the implications of that change for future labour demand. The paper deals particularly with technical change which affects the distribution of employment across occupations within industries, and the distribution across different categories of hours worked within occupations. Tables are included to illustrate how the forecasting system can be interrogated to reveal * the contributions of various industries to employment growth for a selected occupation, and * the relative importance of output growth, capital growth and labour saving technical change to industry employment growth. The paper concludes with a review of some issues associated with making a proper assessment of the forecasts. Classification-JEL: C68, D58, E47, J21 Creation-Date: 1996-04 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/op-87.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:op-87 Template-type: ReDIF-Paper 1.0 Title: The Theoretical Structure of MONASH-MRF Author-Name: Matthew W. Peter Author-X-Name-First: Matthew W. Author-X-Name-Last: Peter Author-Name: Mark Horridge Author-X-Name-First: Mark Author-X-Name-Last: Horridge Author-Name: G.A.Meagher Author-X-Name-First: Author-X-Name-Last: G.A.Meagher Author-Name: Fazana Naqvi Author-X-Name-First: Fazana Author-X-Name-Last: Naqvi Author-Name: B.R.Parmenter Author-X-Name-First: Author-X-Name-Last: B.R.Parmenter Abstract: This paper presents the theoretical specification of the MONASH-MRF model. MONASH-MRF is a multiregional multisectoral model of the Australian economy. Included is a complete documentation of the model's equations, variables and coefficients. The documentation is designed to allow the reader to cross-reference the equation system presented in this paper in ordinary algebra, with the computer implementation of the model in the TABLO language presented in CoPS/IMPACT Preliminary Working Paper No. OP-82. Classification-JEL: C68, D58, R10, R13 Creation-Date: 1996-06 Keywords: multiregional, regional modelling, CGE, regional and Federal government finances File-URL: http://www.monash.edu.au/policy/ftp/workpapr/op-85.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:op-85 Template-type: ReDIF-Paper 1.0 Title: Medium- and Long-run Consequences for Australia of an APEC Free Trade Area: CGE Analyses using the GTAP and MONASH Models Author-Name: Philip D. Adams Author-X-Name-First: Philip D. Author-X-Name-Last: Adams Author-Name: Karen M. Huff Author-X-Name-First: Karen M. Author-X-Name-Last: Huff Author-Name: Robert McDougall Author-X-Name-First: Robert Author-X-Name-Last: McDougall Author-Name: K.R. Pearson Author-X-Name-First: K.R. Author-X-Name-Last: Pearson Author-Name: Alan A. Powell Author-X-Name-First: Alan A. Author-X-Name-Last: Powell Abstract: Two large applied general equilibrium models, GTAP and MONASH, are used in this paper to simulate the elimination of trade barriers among the members of APEC. These models focus respectively on global trading relations and on the detailed sectoral, occupational, and regional dimensions of the Australian economy. We find that the mature industrialized members of APEC are likely to experience modest increases in real GDP from the trade reform, but that there is scope for very big advances in real GDP in some Asian member countries (especially those with high initial trade barriers against imports of capital goods). Relative to base case, Thailand/ Philippines (treated as a single aggregate in these simulations) is projected (after an adjustment period of one to two decades) to have the potential for a 39 per cent rise in GDP due to the formation of an APEC trade block. Other countries reaching double figures are South Korea (14 per cent), New Zealand (11 per cent) and Indonesia (10.5 per cent). These increases are partly at the expense of non-APEC countries which experience on average a 1 per cent fall in GDP due to lost markets and deteriorating terms of trade. A substantial limitation of these projections is that we have not been able to keep track of the ownership of assets; thus rises in GDP do not necessarily imply increases in welfare. The potential long-run increases in APEC members' GDP are highly dependent on international capital mobility. Relative to the case of full mobility, limiting capital growth to what can be financed internally within regions causes the sizes of the projected increases to fall in all member regions except North America. In the case of Thailand/ Philippines, the 39 per cent increase falls dramatically to about 2.5 per cent. The projected long-run rise in Australia's GDP when capital is mobile is about 3 per cent (relative to the no-APEC case). Considerable structural changes accompany this rise: milk and meat products do extremely well (with rises in real output of over 30 per cent relative to base case); traditionally highly protected industries (e.g., synthetic fibres, cotton yarns, footwear and motor vehicles) experience long-run falls of approximately 10 to 20 per cent. Over two thirds of the gain in the rise in the demand price for Australian milk products is due to the opening up of the Japanese market. Creation-Date: 1996-12 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/g-111.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:g-111 Template-type: ReDIF-Paper 1.0 Title: How Does the Share of Imports Change During Structural Adjustment? Author-Name: Alan A. Powell Author-X-Name-First: Alan A. Author-X-Name-Last: Powell Abstract: Estimating the price responsiveness of market shares during a period of structural transition requires a distinction to be made between responses to variables explicitly recognized in the model and those due to more general changes in the trading environment. Often the latter are minimally modelled as market penetration curves taking the form of a sigmoid trend. Broadly this is the approach followed in the present paper; however, the trend 'parameter' capturing ultimate market share at a fixed level of price competitiveness is itself made a logistic function of the relative price variable measuring such competitiveness. The application of the model is to quarterly data on the share of imports in Australian personal consumption over the 1980s and the first half of the 1990s. Most of the signal relevant to price competition between domestic and imported consumer goods occurred over the four years 1985-1988. This coincided with sizeable movements in the real exchange rate; and therefore, presumably, with collinear movements in the prices of the components within the domestic and the imported aggregates, which would be favourable circumstances for the application of Hicks' composite commodity idea. The responses in aggregate market shares during this episode suggest a very long-run Armington elasticity in the range 3.4 to 4.8, with short-run (quarterly) values of 0.6 to 0.8. Classification-JEL: D12, C13, C22, F47, O12 Creation-Date: 1997-08 Keywords: import substitution, Armington elasticity, consumption, structural adjustment, logistic function, market penetration curve File-URL: http://www.monash.edu.au/policy/ftp/workpapr/op-86.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:op-86 Template-type: ReDIF-Paper 1.0 Title: Structural Change, the Demand for Skilled Labour and Lifelong Learning Author-Name: G.A. Meagher Author-X-Name-First: G.A. Author-X-Name-Last: Meagher Abstract: In a recent report, the Organisation for Economic Cooperation and Development has argued that certain key developments, including globalisation, population ageing and the diffusion of information technologies, are causing a shift in the demand for labour in modern advanced economies. Demand is thought to be moving away from relatively low-skilled agricultural and production occupations in favour of highly-skilled professional, technical, administrative and managerial occupations. Moreover, rising turnover in the labour market is tending to increase the rate at which existing skills are rendered obsolete. Hence workers in OECD countries are coming under mounting pressure to adapt and enhance their skills on an ongoing basis; that is, today's workers must participate in lifelong learning. This paper investigates the quantitative evidence for the proposition using, as a case study, the distribution of employment across occupations in Australia. Three changes in this distribution are considered: the change that actually occurred between 1986-87 and 1994-95, a forecast of the change that is likely to occur between 1994-95 and 2002-03, and an estimate of the change that will result from trade liberalisation proposals advanced by the Asia Pacific Economic Cooperation forum. In each case the change in the occupational distribution is used to infer the effect on the demand for labour differentiated by qualification level, qualification field and age group. Unlike much of the structural analysis that accompanies discussions of lifelong learning, the approach here is comprehensive. The analysis is not restricted to occupations thought on a priori grounds to have a particular affinity to lifelong learning, but considers changes in employment across all occupations. Hence the role of particular occupations, such as those associated with information technology, for example, are able to be placed in a an economy-wide perspective. The analysis reveals that the factors driving the demand for labour are numerous and diverse, and suggests that generalisations and "stylised facts" are likely to be of only limited usefulness in determining training priorities. Classification-JEL: C68, D58, E47, F17, J21, I20, J23 Creation-Date: 1997-08 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/g-121.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:g-121 Template-type: ReDIF-Paper 1.0 Title: Dynamic Analysis of a 'Solow-Romer' Model of Endogenous Growth Author-Name: Gordon Schmidt Author-X-Name-First: Gordon Author-X-Name-Last: Schmidt Abstract: The model of endogenous economic growth developed by Paul Romer (1990a) is briefly reviewed and modified by substituting a Solow type consumption function in place of the utility maximising behaviour of consumers. The dynamic system and steady-state growth path of this Solow-Romer model are then derived. Such modification allows the dynamics of the model, in response to certain economic shocks, to be examined in terms of phase diagrams; and illustrates the instructional power of this approach. The impacts of the same economic shocks are also analysed more directly by numerical integration of the differential equations and boundary conditions describing the dynamic system of the model. Adjustment processes are found to be relatively lengthy; and to be characterised by significant initial jumps or discontinuities in certain variables. Furthermore, in some cases these initial jumps can be in the opposite direction to that of the subsequent adjustment. Such results emphasise the importance of explicit analysis of the dynamics of the adjustment paths of growth models and their relevance for economic policy. Creation-Date: 1997-08 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/ip-68.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:ip-68 Template-type: ReDIF-Paper 1.0 Title: Should Tariff Reductions be Announced? An Intertemporal Computable General Equilibrium Analysis Author-Name: Michael Malakellis Author-X-Name-First: Michael Author-X-Name-Last: Malakellis Abstract: In this paper the macro and structural implications of three alternative tariff-reduction strategies are examined. Under the first strategy, which is similar to that adopted in Australia in 1973, the tariff cut is implemented without warning. The second strategy is consistent with the current approach of phasing in tariff cuts according to a previously announced schedule. Under the third strategy the tariff cut is implemented several years after it is announced. We find that the long-run effects of the alternative tariff reduction strategies are similar, but that the adjustment paths are not. Our results suggest that if tariffs are to be reduced then it is preferable to implement the policy without warning. The results emphasise the point that the sooner tariffs are reduced the sooner will the allocative efficiency gains from doing so be realised. Classification-JEL: D58, C68, E27, F13 Creation-Date: 1997-08 Keywords: industry protection, tariffs, allocative efficiency, com- parative-dynamic simulation, computable general equilibrium model, labour market adjustment, timing issues File-URL: http://www.monash.edu.au/policy/ftp/workpapr/op-88.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:op-88 Template-type: ReDIF-Paper 1.0 Title: Productivity in Australian Education between 1986/87 and 1993/94 Author-Name: George Verikios Author-X-Name-First: George Author-X-Name-Last: Verikios Abstract: This paper attempts to estimate the change in total factor productivity (TFP) in total education services provided in Australia, between 1986/87 and 1993/94. A simple model is developed and calibrated using Australian data. TFP is estimated to have fallen by between 16 and 26 per cent depending on what is assumed about the behaviour of average quality over this period. Classification-JEL: I20, I29 Creation-Date: 1997-11 Keywords: education services, productivity, real output measures for education File-URL: http://www.monash.edu.au/policy/ftp/workpapr/g-123.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:g-123 Template-type: ReDIF-Paper 1.0 Title: Re-Estimating Real Output for Service Industries in Australia Author-Name: George Verikios Author-X-Name-First: George Author-X-Name-Last: Verikios Abstract: This paper examines the current national accounts measure of real output for five major service industries in Australia. It finds that real output measures for insurance services; banking services; non-bank financial services; and education services are unsatisfactory. Alternative estimates based on acceptable output proxies are presented for these industries for the period 1986/87-1993/94. The estimates indicate that insurance, banking and non-bank financial services have grown more quickly than previously thought, while education services have grown less quickly than earlier estimates suggested. The effect on GDP of these estimates is also presented. Creation-Date: 1997-12 Keywords: insurance services, financial services, education services, communication services, service industries, real output measures, input- output industries File-URL: http://www.monash.edu.au/policy/ftp/workpapr/g-124.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:g-124 Template-type: ReDIF-Paper 1.0 Title: Measuring Output of Government Administration, Defence and Property and Business Services: Some Estimates for Australia Author-Name: George Verikios Author-X-Name-First: George Author-X-Name-Last: Verikios Abstract: This paper examines the current national accounts measure of real output for three major service industries in Australia. It finds that real output measures for government administration services; defence services; and property and business services are unsatisfactory. Alternative estimates are presented for government administration services and defence services for the period 1986/87-1993/94. The estimates for government administration services compare well with the current national accounts measure, whereas for defence services they indicate that real output has grown less quickly than previously thought. No estimates for property and business services are presented due to lack of data. Classification-JEL: H50, H56, L80, L84 Creation-Date: 1997-12 Keywords: government administration services, defence services, property and business services, service industries, real output measures for service industries, input-output industries File-URL: http://www.monash.edu.au/policy/ftp/workpapr/g-127.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:g-127 Template-type: ReDIF-Paper 1.0 Title: Women and Part-Time Employment: The Waverley Survey Author-Name: Judith S. Willis Author-X-Name-First: Judith S. Author-X-Name-Last: Willis Abstract: This paper contributes data about women and part-time employment in Australia. "Part-time" is defined as one or more, but less than thirty-five hours per week. Findings from a survey conducted throughout the City of Waverley, Melbourne (1977) are given against a background of similar data from the Australian Bureau of Statistics (1977-1996) and the Women and Employment Survey of Great Britain (1980). Aspects of part-time employment are reported for part-time working women and for women who had no paid work, but "would... like to work part-time now". These aspects include range of hours, pattern and number of hours by school level of youngest child, number of weekdays worked, trade union membership, casual work, travel time to work, work at home, employment benefits (including promotion) and work preferences. Classification-JEL: J2, J4, J7 Creation-Date: 1997-12 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/g-122.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:g-122 Template-type: ReDIF-Paper 1.0 Title: When Modellers Behave Like Lawyers: Have we Lost The Plot? Author-Name: Alan A. Powell Author-X-Name-First: Alan A. Author-X-Name-Last: Powell Abstract: Australia has made outstanding contributions to the use of quantitative economic models in public policy discussions. That leading role is now threatened by the increasing use of econometric modellers in an advocacy, lawyer-like role, rather than as impartial sources of the best available technical advice. This development became inevitable once it became fashionable in Canberra during the mid 1980s to deny the existence of public goods and to force the funding of economic intelligence garnering increasingly into the private sector. This paper argues that we are all the losers. Creation-Date: 1998-01 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/g-125.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:g-125 Template-type: ReDIF-Paper 1.0 Title: From Dornbusch to Murphy: Stylized Monetary Dynamics of a contemporary Macroeconometric Model Author-Name: Alan A. Powell Author-X-Name-First: Alan A. Author-X-Name-Last: Powell Abstract: Dornbusch's 1976 overshooting exchange rate model (hereafter, DBM) has long been known to underpin several large macro models, including the Murphy Model (MM). But the dynamic adjustment paths of variables in MM differ markedly from those in DBM, even qualitatively. A leading case in point is the exchange rate which in MM undershoots its new long run-equilibrium value after the injection of a monetary shock, and then actually moves away from this equi-librium for a time before approaching it via a damped cyclical adjustment path (whereas the corresponding path in DBM is monotonic). This paper gives a simplified account of how this comes about. The emphasis is not so much on theoretical rigour but on providing a convincing practical demonstration. Using the simplest form of DBM as a starting point, it is shown how one can develop a miniature model exhibiting an MM-like response to a monetary shock. The key idea is that aggregate demand does not respond instantaneously (as in DBM) to shocks in the macroeconomic environment, but shows some degree of inertia. Nothing more is required to reconcile the qualitative dynamics of MM with DBM. Creation-Date: 1998-01 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/ip-69.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:ip-69 Template-type: ReDIF-Paper 1.0 Title: Can Tax Reform Work in an Economy Where Tax Avoidance and Evasion are Endemic? Author-Name: Edimon Ginting Author-X-Name-First: Edimon Author-X-Name-Last: Ginting Abstract: In this model firms seek to minimise their tax liabilities by purchasing rent-seeking services from a provider who also sells legitimate public services to the government. The provider enjoys economies of scope - its two outputs are produced jointly. Tax reform in this setting can increase both government revenue and the efficiency of the economy because a type of Laffer curve is operational and because such reform can lead to resources being moved out of rent-seeking activity. Later this partial equilibrium framework will be embedded within a conventional general equilibrium model. Creation-Date: 1998-01 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/ip-71.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:ip-71 Template-type: ReDIF-Paper 1.0 Title: Estimating the behaviour of Productivity in Government Administration Services in Australia Author-Name: George Verikios Author-X-Name-First: George Author-X-Name-Last: Verikios Abstract: This paper estimates the change in total factor productivity (TFP) in government administration services in Australia for the period 1986/87-1993/94. A simple model is presented and calibrated using Australian data. TFP is estimated to have remained constant over this period. The issues with respect to measuring the output of government administration services are also explored. Classification-JEL: D24, H40 Creation-Date: 1998-01 Keywords: total factor productivity, government administration services, real output measures for government administration services File-URL: http://www.monash.edu.au/policy/ftp/workpapr/g-126.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:g-126 Template-type: ReDIF-Paper 1.0 Title: LONG-RUN SIMULATIONS WITH GTAP: Illustrative Results from APEC Trade Liberalisation Author-Name: Terrie Walmsley Author-X-Name-First: Terrie Author-X-Name-Last: Walmsley Abstract: In static applied general equilibrium models, the exogenous/endogenous split between variables (or closure) is used to infer the time frame over which the effects of a shock are simulated. This paper introduces a long-run closure for the GTAP model (Hertel and Tsigas, 1997) and uses this closure to simulate and compare the short-run and long-run effects of Asia-Pacific trade liberalisation. The approach explored here incorporates some relatively minor changes to existing GTAP theory in order to define a steady state in which growth rates of all real variables are uniform. Such uniformity must apply in the initial database (as well as in the post-shock solution). So to implement the new long run in GTAP a new initial database must first be created. Details concerning the creation of the new database are given, and results under the new approach are compared with those obtained under the old. The emphasis of this paper is on the development of a long-run closure in which the percentage change form equations of the model and the relationships between the levels variables in the GTAP database are consistent. Further research is required into these types of long-run closures to incorporate changes in ownership of capital to ensure that changes in welfare are adequately modelled. In the results reported here, GDP is not a useful guide to national welfare. The long-run closures introduced here are also compared with another comparative static long-run closure developed for GTAP by Francois, MacDonald and Nordstrom (1996). Classification-JEL: D58, F15 Creation-Date: 1998-01 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/ip-70.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:ip-70 Template-type: ReDIF-Paper 1.0 Title: The Nested Binary CES Composite Production Function: CRTS with different (but constant) pair-wise elasticities of substitution among three factors Author-Name: Alan A. Powell Author-X-Name-First: Alan A. Author-X-Name-Last: Powell Author-Name: Maureen T. Rimmer Author-X-Name-First: Maureen T. Author-X-Name-Last: Rimmer Abstract: The policy debate on global warming has raised the prospect of large taxes on Greenhouse pollutants leading to a very substantial rise in the price of energy. Models in which output is produced according to a technology in which capital (K), labour (L) and energy (E) are substitutable run into the difficulty of how to allow parsimoniously for the higher likely substitutability between K and E than between L and E. Nesting all three factors in a single CES aggregator function is unsatisfactory because of the constancy over pairs of factors of partial substitution elasticities. This paper is a variation on the CES theme. It presents a new composite three-input production function (based on CES and Leontief components) which allows the partial substitution elasticities between capital and labour, capital and energy, and between labour and energy, to differ but to remain individually constant. Classification-JEL: D2, E1 Creation-Date: 1998-04 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/op-89.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:op-89 Template-type: ReDIF-Paper 1.0 Title: The Economy-wide Impact of Better Governance: Cutting Informal Taxes in Indonesia Author-Name: Edimon Ginting Author-X-Name-First: Edimon Author-X-Name-Last: Ginting Author-Name: Alan A. Powell Author-X-Name-First: Alan A. Author-X-Name-Last: Powell Abstract: In some developing economies the costs of meeting informal taxes (corruption of various sorts) have been put as high as 30 percent of the market value of output in some industries. Current political reform in Indonesia raises the prospect of a substantial fall in such costs. To assess the consequences for Indonesia's international competitiveness and national welfare requires the development and use of an applied general equilibrium model which explicitly recognises the existence of non-official imposts and the substantial (but socially wasteful) economic activity expended in attempting to reduce them. ORANI-RSA is such a model, recently developed for this purpose. In short- and long-run simulations the nominal rate at which informal taxes are levied is halved and the response of the economy determined. Not unexpectedly, competitiveness and the trade account improve substantially (with a 2 percent short-run fall in the real foreign-currency cost of the Rupiah). Indonesian welfare also improves. The only industry to decline is the service providing sector (corresponding roughly to the bureaucrats who supply intermediation between legitimate producers and the corrupt members of the power elite). The reform causes a fall in income from corruption, while redistributive effects via differential consumption patterns reinforce the improvement in the trade balance. Classification-JEL: K42, D58, O53 Creation-Date: 1998-04 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/op-92.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:op-92 Template-type: ReDIF-Paper 1.0 Title: The Potential Benefits of Hilmer and Related Reforms: Electricity Supply Author-Name: John L. Whiteman Author-X-Name-First: John L. Author-X-Name-Last: Whiteman Abstract: This article examines the macroeconomic impact of the elimination of x-inefficiency in the Australian electricity supply industry using a computable general equilibrium (CGE) model of the Australian economy. Data envelopment analysis and a stochastic production frontier model are applied to measure x-inefficiency in the electricity industry. It is assumed that microeconomic reform will eliminate this x-inefficiency. The potential increase in total factor productivity resulting from microeconomic reform is introduced into the CGE model as a Hicksian-neutral factor-augmenting technological change. Two alternative labour market assumptions are utilised in measuring the macroeconomic benefits of the microeconomic reform. The results suggest that even under the most pessimistic labour market assumptions, the potential benefits of microeconomic reform in an industry such as electricity will not be trivial. It therefore follows that the impact of microeconomic reform on economic growth could be substantial, particularly if the Australian labour market is more flexible than hitherto assumed. Classification-JEL: D24 Creation-Date: 1998-04 Keywords: microeconomic reform, x-inefficiency, data envelopment analysis, stochastic production frontier, computable general equilibrium, natural rate of unemployment File-URL: http://www.monash.edu.au/policy/ftp/workpapr/g-128.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:g-128 Template-type: ReDIF-Paper 1.0 Title: The Effects of Current Fiscal Restraint on the Australian Economy: an Applied General Equilibrium Analysis with Imperfect Competition Author-Name: Kaludura Abayasiri-Silva Author-X-Name-First: Kaludura Author-X-Name-Last: Abayasiri-Silva Author-Name: Mark Horridge Author-X-Name-First: Mark Author-X-Name-Last: Horridge Abstract: The objective of this paper is to examine the short run and long run effects of the reduction of government expenditure on the Australian economy using an applied general equilibrium model, which incorporates economies of scale and imperfect competition. The paper describes a 23-sector computable general equilibrium model of the Australian economy, and covers short-run as well as long-run profit-maximising behaviour of the firm. Economies of scale are incorporated in the model at the industry level and the firm level. The pricing behaviour is modelled as perfectly competitive, monopolistically competitive and in other ad hoc ways, as in Harris (1984). The different assumptions about technology, pricing behaviour and firm entry are combined in various ways to produce a variety of scenarios in our simulations. We present results for three different types of non-competitive regime and compare these with results generated by a traditional version of the same model. Classification-JEL: C68, L11, L13 Creation-Date: 1998-04 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/op-91.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:op-91 Template-type: ReDIF-Paper 1.0 Title: Scale Efficiency in the New Zealand Dairy Industry: A Non-Parametric Approach Author-Name: Mohammad Jaforullah Author-X-Name-First: Mohammad Author-X-Name-Last: Jaforullah Author-Name: John Whiteman Author-X-Name-First: John Author-X-Name-Last: Whiteman Abstract: The objective of this paper is to measure the scale efficiency of the New Zealand dairy industry and to examine the relationship between farm size and efficiency. Data envelopment analysis (DEA) is applied to a sample of 264 dairy farms. The results suggest that 19 per cent of these farms are operating at optimal scale, 28 per cent at above optimal scale, and 53 per cent at below optimal scale. On average the optimal size for New Zealand dairy farms is estimated at 83 hectares with a herd of 260 animals. Average technical efficiency is estimated at 89 per cent. Classification-JEL: D24 Creation-Date: 1998-06 Keywords: Data envelopment analysis (DEA), benchmarking partnerships, technical efficiency, optimal, supra-optimal and sub-optimal scale File-URL: http://www.monash.edu.au/policy/ftp/workpapr/g-129.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:g-129 Template-type: ReDIF-Paper 1.0 Title: Forecasting and Policy Analysis with a Dynamic CGE Model of Australia Author-Name: Peter B. Dixon Author-X-Name-First: Peter B. Author-X-Name-Last: Dixon Author-Name: Maureen T. Rimmer Author-X-Name-First: Maureen T. Author-X-Name-Last: Rimmer Abstract: The main ideas in this paper are: (a) that CGE models can be used in forecasting; and (b) that forecasts matter for policy analysis. We demonstrate these ideas by describing an application of MONASH, a dynamic CGE model of Australia, to the Australian motor vehicle industry over the period 1987 to 2016. The key to generating believable forecasts is to use detailed information available from expert groups specializing in the analysis of different aspects of the economy. In MONASH we incorporate forecasts by specialists: on the domestic macro economy; on Australian economic policy; on world commodity markets; on international tourism; on production technologies; and on consumer preferences. We have found that CGE forecasts incorporating such specialist information are readily saleable to public and private organizations concerned with investment, employment, training and education issues. This is partly because the economy-wide consistency guaranteed by the CGE approach enables users of economic intelligence to see the disparate forecasts dealing with different parts and aspects of the economy within an integrated perspective. Over the last thirty five years, CGE models have been used almost exclusively as aids to "what if" (usually policy) analysis. In almost all cases it has been assumed that the effects of the shock under consideration are independent of the future path of the economy. Thus, for "what if" analysis, a common implicit view is that realistic basecase forecasts are unnecessary. Contrary to this view, we find that "what if" answers depend significantly on the basecase forecasts. This is not surprising when we are concerned with unemployment and other adjustment costs. However, we find that basecase forecasts are critical even when our concern is the long-run welfare implications of a policy change. For example, we find that the simulated long-run effects of a tariff cut on imported cars are strongly influenced by the basecase forecast of the rate of technical progress in the car industry relative to that in other industries. Classification-JEL: C53, C68, D58, F47 Creation-Date: 1998-06 Keywords: CGE model, forecasting, policy analysis, MONASH model, automobile industry, adjustment costs File-URL: http://www.monash.edu.au/policy/ftp/workpapr/op-90.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:op-90 Template-type: ReDIF-Paper 1.0 Title: Long-run Effects on China of APEC Trade Liberalisation Author-Name: Philip D. Adams Author-X-Name-First: Philip D. Author-X-Name-Last: Adams Author-Name: Mark Horridge Author-X-Name-First: Mark Author-X-Name-Last: Horridge Author-Name: Brian Parmenter Author-X-Name-First: Brian Author-X-Name-Last: Parmenter Author-Name: Xiao-Guang Zhang Author-X-Name-First: Xiao-Guang Author-X-Name-Last: Zhang Abstract: Plans for APEC trade liberalisation include the elimination of all tariffs between member states. In this paper we use two computable general equilibrium models to examine the effects of these plans, focussing on China. Our modelling shows that liberalisation increases China's capital stock and real GDP. The implication for Chinese industries depend on the extent to which liberalisation exposes them to additional import competition. Industries strongly stimulated include Textiles and Communications Equipment. Transport Equipment is the most adversely affected. Chinese regional results follow from the industrial compositions of the regions, with Zhejiang the most favourably affected and Jilin the least. Classification-JEL: C68, F15 Creation-Date: 1998-10 Keywords: Computable General Equilibrium Models, Economic Integration File-URL: http://www.monash.edu.au/policy/ftp/workpapr/g-130.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:g-130 Template-type: ReDIF-Paper 1.0 Title: Market Power in Australian Manufacturing Industry: A Confirmation of Hall's Hypothesis Author-Name: Kaludura Abayasiri-Silva Author-X-Name-First: Kaludura Author-X-Name-Last: Abayasiri-Silva Abstract: Robert Hall (1986, 1988, and 1990) has emphasised the importance of imperfect competition and economies of scale in explaining procyclical movements in measured total factor productivity in US industries. In contrast to the labour hoarding hypothesis and real business cycle theorists, he cites the observed procyclical movement in total factor productivity in US industries as evidence against perfect competition, revealing that prices substantially exceed marginal costs. Following the work of Hall (1986, 1988 and 1990), his paper investigates whether the procyclical movements in total productivity in Australian manufacturing industries provide some evidence for a particular type of market structure. The main contribution of this paper is the provision of a formal explanation for the difference between the estimated markup ratios and returns to scale by using value added data and gross output data, as highlighted in the work of Domowitz, Hubbard and Peterson (1988), Norrbin (1993) and Basu and Fernald (1995, 1997). Our formal explanation shows that, with the use of value added data, the estimated Solow residual (and hence the markup ratios) are almost twice as large as those obtained with gross output data, because of the two different production functions involved in estimating the Solow residual. Moreover, the main results of the paper, based on the value added data, indicate that the price of most Australian manufacturing industries exceeds their marginal costs, as in the case of the US industries. The highest markup ratios are reported by the chemical and the iron and steel industries. The results also provide evidence that the textile, non-mineral products, other transport and photographic and scientific industries behave as competitive industries. Classification-JEL: C68, L11, L13 Creation-Date: 1999-04 Keywords: Market structure, total factor productivity, economies of scale, imperfect competition File-URL: http://www.monash.edu.au/policy/ftp/workpapr/g-132.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:g-132 Template-type: ReDIF-Paper 1.0 Title: The Government's Tax Package: Further Analysis based on the MONASH Model Author-Name: Peter B. Dixon Author-X-Name-First: Peter B. Author-X-Name-Last: Dixon Author-Name: Maureen T. Rimmer Author-X-Name-First: Maureen T. Author-X-Name-Last: Rimmer Abstract: This report builds on an earlier paper discussed by Peter Dixon with the Senate Select Committee on December 18, 1998 which describes a single simulation, with the MONASH model, of the effects of the tax package. A revised version of this simulation is presented here as the central case ; however, the present report is self-contained. The Government plans: to reduce taxes on inputs to business; to reduce income taxes; and to increase taxes on consumption by the introduction of a 10 per cent GST. In our central simulation with the MONASH model, we find, as in the December paper, that: * the long-run resource allocation gains flowing from the proposed tax changes will be negligible; * the package will harm Tourism and benefit most traditional exporters, e.g. Iron ore; the effects on consumer-good industries will be mixed; * employment will be stimulated in the short-run by about 30,000 jobs; * investment will be increased, especially in the short run; and * the package will produce a long-run increase in capital stock in Australia, but little change in economic welfare. A welfare-reducing aspect of the tax package is terms-of-trade reduction. In the central simulation there is a long-run negative effect on Australia's terms of trade associated with the positive effect on overall exports. The negative effect on the terms of trade is exacerbated by a shift in the composition of exports away from services and towards goods. In our basecase forecasts, world prices of services increase relative to those for goods. The negative terms-of-trade effect of the package slightly outweighs the long-run welfare gains associated with other aspects of the package including increases in the capital stock. Our finding of a small negative long-run welfare effect should not be interpreted as inconsistent with Econtech's result obtained using the MM303 model. Econtech found a small long-run welfare gain. The main point is that both models agree that the economic welfare effects of the proposed tax changes will be small. In addition to the central simulation, we conducted six sensitivity simulations. The first is concerned with the labour market. In the central simulation we adopted the favourable assumption that workers make their wage bargains in real after-tax terms. This means that workers accept the income tax cuts in the Government's tax package as compensation for the increase in the CPI associated with the imposition of the GST. In the sensitivity simulation we make the alternative assumption that workers bargain in real before-tax terms. Under this assumption, the GST-induced jump in the CPI produces a corresponding jump in wage demands. We find a significant short-run negative effect on employment, a loss of 100,000 jobs. If the tax package is to be implemented smoothly, it is vital that Australian workers allow their before-tax wages to decline relative to the CPI. The second sensitivity simulation is concerned with exports of tourism and education services. It is clear that the tax package will increase foreign currency prices of Australia's service exports. However it is not clear what elasticity value should be used in translating foreign-currency price increases into resulting reductions in tourist and student numbers. In the central simulation we assumed that foreign elasticities of demand for these services are -3. With this value we found in our central simulation that the tax package will reduce tourism exports by between 9 and 13 per cent, and education exports by between 7 and 12 per cent. Some well-informed commentators think that -3 is too large for the export demand elasticities for services. In the sensitivity simulation we set the export demand elasticities for services at -2, but still find significant damage to service exports. In the low elasticity simulation the long-run terms-of-trade outcome is more favourable than in the central simulation. This converts the small long-run welfare loss in the central simulation into a small long-run welfare gain in the low-elasticity simulation. In the third sensitivity simulation we take the GST off packaged holidays to Australia paid for by foreigners in their own countries. This removal of GST on packaged tours affects only about one sixth of (broadly defined) tourist expenditures. Nevertheless, freeing packaged holidays of GST would have a useful damage-reducing impact on tourism exports. Rather than tourism exports being reduced by between 9 and 13 per cent as in the central simulation, when packaged holidays are GST-free these exports are reduced by between 6 and 10 per cent. On the other hand, failure to charge GST on packaged holidays reduces annual revenue by about $300 million. We assume that this is recovered by giving a smaller reduction in income taxes. Overall, the removal of GST on packaged holidays has a negligible, but slightly positive, net impact on the change in economic welfare flowing from the tax package. In the fourth and fifth sensitivity simulations we remove the GST from food and make a corresponding reduction in the income-tax cut offered as part of the Government's package. The fourth sensitivity simulation adopts the labour market assumption used in the central simulation (after-tax wage bargaining) while the fifth adopts the assumption used in the first sensitivity simulation (before-tax wage bargaining) . With after-tax wage bargaining, in the fourth sensitivity simulation higher income taxes stimulate wage demands. However, this effect is slightly outweighed by the lowering of food prices. The net result is a small favourable effect in the short run on employment (an increase of 38,000 jobs versus 30,000 as in the central simulation). In the fifth sensitivity simulation, the lowering of food prices continues to dampen wage demands but, with before-tax wage bargaining, the increase in income taxes has no effect. Thus, the short-run stimulatory effect on employment of exempting food from the GST is much greater with before-tax wage bargaining than with after-tax bargaining. Instead of employment decreasing in the short run by 100,000 jobs as in the first sensitivity simulation, in the fifth sensitivity simulation short-run job losses are restricted to 68,000. In the long run, exempting food has a negligible, but negative, impact on economic welfare under either labour market assumption. It should be noted that the costs of implementation, compliance, administration and rent-seeking are likely to be increased if the GST is implemented with substantial exemptions, but in all of our simulations they have been ignored. These ignored costs should be set against any benefits that we show in our simulations for the tax package, especially in assessing the benefits of exempting food. A second caution concerns the source of employment gains in the central simulation. We can think of the move from the central simulation to the fourth sensitivity simulation as combining a reduction in consumption taxes with a compensating increase in income taxes. According to the fourth sensitivity simulation this leads to an increase in employment. The question arises therefore as to how the imposition of consumption taxes combined with a reduction in income taxes generates a short-run gain in employment in the central simulation. The answer is that the tax changes in the central simulation are not balanced. Employment is stimulated in the central simulation (after-tax wage bargaining) only because the Government's tax package involves a net movement towards deficit, allowing large reductions in income taxes. More generally, in an environment of after-tax wage bargaining, the Government could achieve short-run employment gains simply by cuts in income taxes without changing indirect taxes. In the sixth sensitivity simulation we introduce different pass through rates for increases and decreases in indirect taxes. In the central simulation we assumed that all changes in indirect taxes are passed on immediately. In the sensitivity simulation we continue to assume immediate passing on of increases in consumption taxes but we assume that it will take two years to complete the passing on of reductions in taxes on inputs. The long-run effects of delayed pass through are negligible. However, the short-run effects could be quite severe. In the sensitivity simulation, a short-run effect of the package is to reduce employment by 15,000 jobs whereas in the central simulation employment in the short run increased by 30,000 jobs. As recognised by the Government, it will be important to ensure that tax reductions pass through quickly to reduced input prices. Overall, the six sensitivity simulations strengthen the finding in our December paper that the Government's proposed tax changes will have little effect on Australia's long-run macro-economic performance. They add a new dimension by illustrating two short-run down-side risks: the package will cause job losses in the short run if wage earners refuse to allow before-tax wage rates to fall relative to the CPI or if increases in indirect taxes are passed on more quickly than reductions. In motivating the tax package, particularly the introduction of the GST, the Treasury has asserted that a major change in the tax mix is necessary because the present array of indirect taxes will raise insufficient revenue to met Australia's future needs. Using a MONASH forecast simulation, we find no support for this proposition. Classification-JEL: C68, F15 Creation-Date: 1999-04 Keywords: Computable General Equilibrium Models, Economic Integration File-URL: http://www.monash.edu.au/policy/ftp/workpapr/g-131.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:g-131 Template-type: ReDIF-Paper 1.0 Title: Incorporating International Capital Ownership into the GTAP Model: Results for Asia-Pacific Trade Liberalisation Author-Name: Terrie L. Walmsley Author-X-Name-First: Terrie L. Author-X-Name-Last: Walmsley Abstract: In this paper, some major modifications are made to the existing GTAP structure and database to incorporate a long-run closure in which changes in the ownership of capital stocks are determined endogenously and income earned on endowment commodities accrues to the owners of those endowments. This long-run closure assumes that in the long run all economies are growing at a common steady-state rate of growth, determined by the rate of population and technological growth. In order to ensure valid comparative statics the underlying growth rate in the database must equal this steady-state rate of growth. Shocks are imposed to equate the growth rates of capital across regions and thus create a steady-state database. Once the GTAP model and database have been modified, they are then used to simulate the long-run effects of Asia-Pacific trade liberalisation on welfare and gross national product. It is found that the foreign ownership of assets does have a significant effect on the projected outcome of trade liberalisation in the Asia-Pacific region. Creation-Date: 1999-04 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/ip-72.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:ip-72 Template-type: ReDIF-Paper 1.0 Title: Decomposing Simulation Results with Respect to Exogenous Shocks Author-Name: W. Jill Harrison Author-X-Name-First: W. Jill Author-X-Name-Last: Harrison Author-Name: J. Mark Horridge Author-X-Name-First: J. Mark Author-X-Name-Last: Horridge Author-Name: K.R. Pearson Author-X-Name-First: K.R. Author-X-Name-Last: Pearson Abstract: When a general equilibrium model is solved, there are often a large number of exogenous shocks. The change in each endogenous variable obviously depends on these different shocks. We point out a natural way of decomposing the changes (or percentage changes) in the endogenous variables as sums of the contributions made by the change in each exogenous variable. The change in any endogenous variable is exactly equal to the sum of the contributions to this change attributed to each of the exogenous variables. The contribution of a group of exogenous variables to the change (or percentage change) in any endogenous variable is defined to be the sum of the contributions of the individual exogenous variables in the group. If all the exogenous variables are partitioned into several groups that are mutually exclusive and exhaustive, the change (or percentage change) in any endogenous variable is just the sum of the contributions made by these groups. We introduce, and motivate, these decompositions in the context of a published GTAP application in which 10 regions remove import tariffs and non-tariff barriers to imports. We use the methods given in this paper to report numerical values for the contributions to the welfare gains of various regions due to tariff reductions by particular regions or groups of regions in this simulation. We show how the values obtained via the decomposition are related to the estimates in the published study of the contributions to welfare gain due to certain groups of tariff reductions. We describe a practical procedure for calculating the contributions of individual exogenous variables or groups of exogenous variables to the changes (or the percentage changes) in all of the endogenous variables. This procedure, which applies to a wide range of general equilibrium models, is now automated in GEMPACK in a version that will be made publicly available in the future. The contributions that make up the decomposition are defined as integrals. As such, they depend on the path by which the exogenous values move from their pre-simulation to post-simulation values. We propose one natural path, namely a straight line between these two points. Along this path, the ordinary rate of change is constant for each variable. Classification-JEL: C63, C68 Creation-Date: 1999-05 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/ip-73.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:ip-73 Template-type: ReDIF-Paper 1.0 Title: Tax Evasion in a Corrupt Economy Author-Name: Edimon Ginting Author-X-Name-First: Edimon Author-X-Name-Last: Ginting Abstract: Tax evasion has been studied intensively in the context of developed countries in which the institutional environment assumes a pervasive respect for the rule of law. In many developing nations such an assumption is not warranted. The objective of this paper is to develop a model of tax evasion apposite to an institutional set up in which corruption is endemic. The services of corrupt intermediaries are required by otherwise legitimate producers in order to navigate the informal 'laws' put in place by rent seekers with good connections. The model developed here posits a service providing industry which produces legitimate public services and corrupt intermediation as joint products which exploit economies of scope available to senior bureaucrats. The model can be used in various ways; in this paper a cut in the tax rate on income from capital is examined. Under certain conditions such a cut can lead to increased government revenue, giving a new explanation of how a kind of Laffer curve may operate in economies with endemic corruption. Classification-JEL: H2, O1 Creation-Date: 1999-10 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/g-133.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:g-133 Template-type: ReDIF-Paper 1.0 Title: What is Assumed in the GTAP Database's Disaggregation of Labor by Skill Level? Author-Name: Gouranga Gopal Das Author-X-Name-First: Gouranga Gopal Author-X-Name-Last: Das Abstract: The 45 region by 50 commodity by 5 primary factor version of the GTAP database provides us with the splits of total labor payments into two categories, viz. skilled and unskilled labor in each sector. The decomposition of total labor payments in all sectors and all regions according to differentials in the skill content of the labor force presupposes substitution possibilities between these two categories of labor. Our interest is to explore the elasticity of substitution implicit in this disaggregation of occupation types. Given the skilled labor payment shares (as calculated from the GTAP database), we offer an ex post rationalization of them within a production-theoretic framework, thereby deriving estimates of the elasticity of substitution between skilled and unskilled labor. The adoption of a suitable nesting of skilled and unskilled labor in GTAP's production function enables us to find a 'reasonable' value for the substitution elasticity that is implicit between the two categories of labor in the GTAP database. This relies on the inter-regional covariation in the GTAP shares and in measures of educational attainment. Classification-JEL: J24, J31, O15 Creation-Date: 1999-10 Keywords: Elasticity of substitution Educational attainment Skilled File-URL: http://www.monash.edu.au/policy/ftp/workpapr/ip-75.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:ip-75 Template-type: ReDIF-Paper 1.0 Title: A General Equilibrium Model of Australia's Premier City Author-Name: J. Mark Horridge Author-X-Name-First: J. Mark Author-X-Name-Last: Horridge Abstract: Australian cities suffer from urban sprawl, leading to long average commute distances and high energy use by urban transport. To investigate this problem, we define and construct a medium-sized general equilibrium model of Australia's second-largest city, Melbourne. Individuals are modelled as utility maximisers who face a discrete number of choices. We follow the logit approach, where the probability of an individual pursuing an option (for example, living in high-density housing in zone A while working in zone B) is proportional to the utility derived from that option, taking into account the cost of the option and the effect of this cost on the total utility obtainable with given income-producing opportunities. The spatial layout of the city, through the cost of travel from one zone to another, influences the pattern of land rents, industrial activity, and housing location and density. As in other general equilibrium models, market-clearing and accounting equations allow the whole economy of the city to be presented within an integrated framework. The result is a fairly general economic model of urban land use and travel demands. We use it to analyse the effects of population growth and policy initiatives on transport usage. Creation-Date: 1999-10 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/ip-74.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:ip-74 Template-type: ReDIF-Paper 1.0 Title: The Measurement Of Efficiency Where There Are Multiple Outputs Author-Name: John L. Whiteman Author-X-Name-First: John L. Author-X-Name-Last: Whiteman Abstract: This paper is motivated by the empirical observation that in many studies the elasticity of output with respect to labour is often negative and/or insignificant. The present study applies multiple output models to estimate the technical efficiency of enterprises in the international electricity, gas and telecom-munications industries. The results support the contention that single output production models may yield misleading results in respect of the elasticities of inputs such as labour. The results also suggest that relatively simple DEA and ordinary least squares models may be preferred to more complex stochastic frontier models in estimating the technical efficiency of enterprises. Classification-JEL: D24, L94, L95, L96 Creation-Date: 1999-11 Keywords: multiple output, data envelopment analysis, stochastic production frontier, distance function, ray frontier, technical efficiency File-URL: http://www.monash.edu.au/policy/ftp/workpapr/g-134.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:g-134 Template-type: ReDIF-Paper 1.0 Title: Labour Supply and Welfare Participation in Australian Two-Adult Households: Comparing 1986/87 with 1994/95 Author-Name: Guyonne R. Kalb Author-X-Name-First: Guyonne R. Author-X-Name-Last: Kalb Abstract: We estimate a simultaneous discrete choice model for welfare participation and labour supply of two-adult households in Australia using the Income and Housing Costs Survey of 1994/1995. Welfare participation is assumed to have a positive indirect effect (through income) and a negative direct effect on utility. This approach allows for non-participation of eligible people. The results are compared with those from an earlier study using the 1986/1987 Income Distribution Survey. The differences are discussed in the context of policy changes affecting welfare payments and of behavioural changes as they emerge from the models. The results indicate that there is evidence of a significant disutility associated with welfare participation in both years. We also find that a change in the benefit withdrawal rate or the maximum benefit level does not seem to have a large effect on the labour supply of either adult. Classification-JEL: J22, I38 Creation-Date: 1999-12 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/bp-34.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:bp-34 Template-type: ReDIF-Paper 1.0 Title: Historical Simulations with the MONASH Regional Equation System Author-Name: Brian R. Parmenter Author-X-Name-First: Brian R. Author-X-Name-Last: Parmenter Author-Name: Andrew Welsh Author-X-Name-First: Andrew Author-X-Name-Last: Welsh Abstract: MONASH-RES combines a top-down regional equation system with the MONASH dynamic model of Australia to produce regional forecasts or policy analysis. Experience indicates that MONASH-RES gives acceptable rankings of regional economic prospects but understates inter-regional differences. We investigate the model's properties by attempting to reproduce observed patterns of State/Territory economic performance from 1986-87 to 1993-94. Industries are classified either as national, producing commodities that are readily traded between regions, or as local, producing goods or services that are not traded between regions. Regional outputs of national industries are assumed to be independent of regional demand for them but regional outputs of local industries must meet regions' demands. The results demonstrate that MONASH-RES forecasts are improved significantly by the inclusion of region-specific macro data and accurate information about the regional distribution of output changes in national industries. They confirm that the treatment of local industries in MONASH-RES is satisfactory. Classification-JEL: D58, R11, R13 Creation-Date: 2000-10 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/op-95.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:op-95 Template-type: ReDIF-Paper 1.0 Title: Applied General Equilibrium Modelling and Labour Market Forecasting Author-Name: G.A. Meagher Author-X-Name-First: G.A. Author-X-Name-Last: Meagher Author-Name: P.D. Adams Author-X-Name-First: P.D. Author-X-Name-Last: Adams Author-Name: J.M. Horridge Author-X-Name-First: J.M. Author-X-Name-Last: Horridge Abstract: This paper describes the application of the MONASH CGE model to labour market forecasting in Australia. The method consists of solving a top-down sequence of models that proceeds from a macro scenario to the CGE model to various labour market extensions. The extensions involve ex post processing of the MONASH results based on employment data from the census and a number of large sample surveys. Their purpose is to greatly increase the amount of information furnished by the simulations at modest additional cost, and hence to support the use of the system for analysing the efficient allocation of training resources. Classification-JEL: C68, D58, J21, J23 Creation-Date: 2000-10 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/ip-76.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:ip-76 Template-type: ReDIF-Paper 1.0 Title: Labour Supply and Welfare Participation in Australian Two-Adult Households: Accounting for Involuntary Unemployment and the 'Cost' of Part-time Work Author-Name: Guyonne R. Kalb Author-X-Name-First: Guyonne R. Author-X-Name-Last: Kalb Abstract: We estimate a simultaneous discrete choice model for welfare participation and labour supply of two-adult households in Australia using the Income and Housing Costs Survey of 1994/1995. In this paper only unemployment-related welfare payments are considered. Welfare participation is assumed to have a positive indirect effect (through income) and a negative direct effect on utility. This approach allows for non-participation of eligible people. An earlier developed labour supply and welfare participation model is extended in this paper by adding employment equations to account for involuntary unemployment. In addition, a part-time penalty term is included in the utility function to allow for monetary or non-monetary costs of working part time and the number of discrete choices is increased. The first two extensions seem to improve the model's ability to simulate the correct distribution of actual labour supply. Without these extensions, labour force non-participation is under-estimated and the number of people in part-time employment is over-estimated. The results indicate that there is evidence of a significant disutility associated with welfare participation for all specifications of the model. We also find that a change in the benefit withdrawal rate or the maximum benefit level does not seem to have a large effect on the actual labour supply of either adult. Classification-JEL: J22, I18 Creation-Date: 2000-10 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/bp-35.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:bp-35 Template-type: ReDIF-Paper 1.0 Title: ORANI-G: A General Equilibrium Model of the Australian Economy Author-Name: Mark Horridge Author-X-Name-First: Mark Author-X-Name-Last: Horridge Abstract: ORANI is an applied general equilibrium (AGE) model of the Australian economy which is widely used by academics and by economists in the government and private sectors. We describe a generic version of the model, ORANI-G, designed both for expository purposes and as a convenient starting-point for those wishing to construct their own AGE model. ORANI-G forms the basis of an annual modelling course, and has been adapted to build models of South Africa, Pakistan, Sri Lanka, Fiji, South Korea, Denmark, Vietnam, Thailand, Indonesia, Philippines and both Chinas. Our description of the model's equations and database is closely integrated with an explanation of how the model is solved. Indeed, the model equations are presented in the syntax, resembling ordinary algebraic notation, used by the GEMPACK modelling system to specify the model. The document includes: an outline of the structure of the model and of the appropriate interpretations of the results of comparative-static and forecasting simulations; a description of the solution procedure; a brief description of the data, emphasising the general features of the data structure required for such a model; a complete description of the theoretical specification of the model framed around the TABLO Input file which implements the model in GEMPACK. Classification-JEL: J22, I38 Creation-Date: 2000-10 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/op-93.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:op-93 Template-type: ReDIF-Paper 1.0 Title: MMRF-GREEN: A Dynamic, Multi-Sectoral, Multi-Regional Model of Australia Author-Name: Philip D. Adams Author-X-Name-First: Philip D. Author-X-Name-Last: Adams Author-Name: J. Mark Horridge Author-X-Name-First: J. Mark Author-X-Name-Last: Horridge Author-Name: Brian R. Parmenter Author-X-Name-First: Brian R. Author-X-Name-Last: Parmenter Abstract: This paper presents an overview of the Monash Multi-Regional Forecasting-Green (MMRF-Green) model. MMRF-Green is a multi-regional, multi-sectoral model of the Australian economy. It is founded on the MMR model. MMR is a comparative-static model. MMRF-Green, in contrast, is a dynamic model; capable of producing sequences of annual solutions connected by dynamic relationships. MMRF-Green also includes enhanced capabilities for environmental analysis, and a regional disaggregation facility that allows results for the eight states/territories to be disaggregated down to 57 sub-state regions. Classification-JEL: C68, R10, R13 Creation-Date: 2000-10 Keywords: multiregional, CGE, environmental, dynamics File-URL: http://www.monash.edu.au/policy/ftp/workpapr/op-94.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:op-94 Template-type: ReDIF-Paper 1.0 Title: Absorption Capacity, Structural Similarity and Embodied Technology Spillovers in a 'Macro' Model: An Implementation Within the GTAP Framework Author-Name: Gouranga Gopal Das Author-X-Name-First: Gouranga Gopal Author-X-Name-Last: Das Author-Name: Alan A. Powell Author-X-Name-First: Alan A. Author-X-Name-Last: Powell Abstract: In this paper, all technology transfers are embodied in trade flows within a three-region, one-traded-commodity version of the GTAP model. Exogenous Hicks-Neutral technical progress in one region can have uneven impacts on productivity elsewhere. Why? Destination regions' ability to harness new technology depends on their absorptive capacity and on the structural congruence of the source and destination. Together with trade volume, these two factors determine the recipient's spillover coefficient (which measures its success in capturing foreign technology). Armington competition between the outputs of the three economies and shifts in their terms of trade loom large in the general equilibrium adjustment. Classification-JEL: D58, F11, F41, O49 Creation-Date: 2000-12 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/ip-77.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:ip-77 Template-type: ReDIF-Paper 1.0 Title: Developing a Cost of Capital Module for Computable General Equilibrium Modelling Author-Name: Ashley Winston Author-X-Name-First: Ashley Author-X-Name-Last: Winston Abstract: This paper outlines two potential approaches to incorporating business taxation and allowances into a model of a firm to determine the effect of tax policy changes on the firm's behaviour. Following Auerbach, King and Benge, we first develop a model in which the firm maximises the value of its shareholder equity, taking account of: company and personal income taxes; capital-gains taxes (including a treatment of realisation-based capital-gains tax); depreciation allowances; investment allowances; and interest rates on debt linked to financial leverage. This approach takes the revenue streams and income payments generated by the firm as given. The second approach involves deriving a function for the user-cost of capital to the firm in an optimising framework in which the expression for the value of the firm is the objective function, and then solve for all of the firm's choice variables. In this way, the model determines the firm's optimal investment policy and the resulting levels of revenues and income streams to shareholders. By embedding this in a dynamic CGE model, we can simulate the effects of tax changes on the user-cost of capital and thus on investment. Our ultimate aim is to enable an analysis of the effects of reforms to business taxation (such as the recent Ralph proposals) using a large-scale dynamic CGE model. This is a revised version of a paper prepared for the PhD Conference in Economics and Business held at The University of Western Australia, Perth, Australia, November 7-9 2001. Classification-JEL: C68, D92, G12, G31, G32, H25 Creation-Date: 2001-12 File-URL: http://www.monash.edu.au/policy/ftp/workpapr/op-96.pdf File-Format: Application/pdf Handle: RePEc:cop:wpaper:op-96 Template-type: ReDIF-Paper 1.0 Title: Introduction to GEMPACK for GAMS Users Author