The Dutch experience: Assessing the welfare impacts of two consolidation strategies using a heterogeneous-agent framework

Between 1990 and 2010, the Dutch government pursued two successful fiscal adjustments: first, in 1995–2002, through a pure expenditure-based strategy and second, in 2004–2007, through a mixed strategy based on social transfer cuts and tax increases. In order to assess welfare and, in particular, inequality effects involved in each episode, we built a general equilibrium model with heterogeneous-agent capable of exploring the relationship between fiscal policy variables and the endogenous cross-section distribution of income, wealth and welfare.The results confirm that, for the Netherlands, a pure expenditure-based strategy is slightly superior relative a (partial) revenue-based one. In spite of positive welfare gains, the model predicts significant transition costs in both episodes due to depletion of insurance capacity, higher inequality and output losses. Moreover, as supported by the data, the model simulations show an improvement of the net foreign asset position in the sequence of the debt-consolidation processes. Finally, the two consolidation episodes, described throughout the paper strengthen the relevance of political institutions as important successful factors.     

Macroeconomic implications of modeling the Internal Revenue Code in a heterogeneous-agent framework

Tax policy analysis in heterogeneous-agent models typically involves the use of smooth tax functions to approximate complex present tax law and proposed reforms. In this paper, we explore the extent to which the tax detail omitted under this conventional approach has macroeconomic implications relevant for policy analysis. To do this, we develop an alternative approach by embedding an internal tax calculator into a large-scale overlapping generations model that, while conditioning on idiosyncratic household characteristics, explicitly models key provisions in the Internal Revenue Code applied to labor income. We find that for a debt-constant steady state analysis of a given tax policy change, both approaches generate similar policy-induced patterns of macroeconomic activity despite variation in the underlying patterns of household tax-preferred consumption and labor supply behavior. However, this variation in underlying behavior is associated with significant quantitative and qualitative differences in macroeconomic aggregates along a debt-financed transition path immediately following a policy change. Consequentially, although the use of unconditional smooth tax functions may be a reasonable modeling simplification for steady state analysis of tax policy, caution should be taken for their use in transition path analysis within heterogeneous-agent models.     

The conditions for the development of a biotechnology industry in Portugal: the impact of country specific factors

The innovation style of a country is dependent upon its distinctive capabilities and its government' policies. Three basic factors are involved: its scientific capabilities, its infrasturcture for transferring research from the public domain into industry, and its manufacturing base and industrial know-how. Most research looks at these three factors in relation to advanced economies, Asian Newly Industrialized Countries (NICs) and 'third world' countries. This paper addresses these issues from the perspective of a European late-industrializing country (Portugal). It uses the twin ideas of National Innovation Systems and 'technological systems' to analyze the development of biotechnology in Portugal. In so doing it illustrates the impact of country specific factors on this development, and the problems assoicated with 'imitation'. The focus of the research is on Dedicated Biotechnology Firms (DBFs), as they are seen as intermediaries between the public science base and the productive sector. It examines the evolution of the biotechnology industry in Portugal, provides an overview of govermment policies, and finally discusses the implications for the creation and development of DBFs in Portugal. The research shows that there was a government effort to create a science base in this field, but there was no parallel strategy to develop a biotechnology industry. There was (and still is) little incentive to use the results of biotechnological research, and little match between technological and market opportunities. In conclusion, the paper argues that policies should be developed to bridge the gap between public research and industry. This will require mechanisms that, going beyond the notion of 'technology transfer', promote an effective transformation of advanced knowledge intergrated into products and services,a nd facilitate the dialogue and exchange between groups with diverse capabilities, objectives and languages.     

On the impact of a tax shock in Portugal

In 1999, Cavaco Silva, the Portuguese Prime Minister from 1985 to 1995, proposed a comprehensive tax reform package, which is to this day the basic reference in the tax policy debate in Portugal. A tax shock would consist of 4pp cuts in the corporate income tax and in the firms social security contribution rates, and a 5pp reduction in the highest personal income tax rate. These cuts would be financed by combating tax evasion, curbing wasteful public expenditure and, if necessary, by increasing the VAT rate by up to 2pp. Using a dynamic general equilibrium model to evaluate the effects of this tax shock, we find that the long-term GDP gains would be between 0.72% and 2.91% while the effects on lifetime private welfare would range between -0.99% and 0.9%. The efficiency of this tax reform package depends critically on the way the tax cuts are financed to ensure deficit neutrality. Because investment is subject to adjustment costs, to alleviate the long-run trade-off between GDP and welfare, tax policy changes must induce a significant increase in net labor income.Received: July 2001, Accepted: March 2002, JEL Classification: C68, D58, E62, H21, H30Correspondence to: Alfredo M. PereiraA previous version of this paper was presented at the Society of Computational Economics and SPiE conferences. Thanks are due to Fernando Chau, Emanuel Santos, and two anonymous referees for very insightful comments and suggestions. The views in this article are of the authors alone and do not reflect the position of the Portuguese Ministry of Finance.     

The welfare impact of a managerial oligopoly with an altruistic firm

I analyse the welfare impact of a mixed market with a private or public firm that is characterised by wider objectives or altruism, in the presence of an agency problem. Contrary to some earlier findings, the total surplus turns out to be increasing in the degree of altruism. This impact is stronger than without an agency problem, despite more stringent conditions for the market to remain mixed. The altruistic firm is more cost efficient, and viable if the market can remain mixed. A competition policy that encourages entry may increase welfare, but its scope is reduced by higher altruism.     

The impact of minimum wages on youth employment in Portugal

On January 1, 1987, the legal minimum wage for workers aged 18 and 19 in Portugal was raised by 49.3%. This shock is used as a “natural experiment” to evaluate the impact of the minimum wage change on teenagers’ employment. The method is to compare, based on firm-level microdata, the employment growth of 18-19-year-old workers with employment growth of older workers. The main findings are that the increase in the minimum wage significantly reduced employment of 18 and olds, but increased employment of 20- olds.     

A welfare analysis of social security in a dynastic framework*

In this article, we study the welfare effects of unfunded social security in a general equilibrium model populated with overlapping generations of altruistic individuals that differ in lifetime expectancy and earnings ability. Contrary to previous research, our results indicate that steady‐state welfare increases with social security for most households, although by very different amounts. This result is mainly due to two factors. First, the presence of two‐sided altruism significantly mitigates the crowding out effect of unfunded social security. Second, ability shocks and uncertain lifetimes generate significant heterogeneity among households to yield different induced preferences for social security.     

The economic impact of EU-enlargement: assessing the migration potential

This paper analyzes the determinants of immigration flows to Germany in a time series-cross section framework. The reduced form of a well established theoretical model is estimated for a sample of 17 sending countries and a period covering 1960 to 1994. The estimates are then used to perform out-of-sample forecasts to assess the immigration potential from the Eastern European accession candidates to Germany. These scenarios predict a moderate increase in immigration to Germany, especially for the first round accession candidates. First version received: July 1999/Final version received: July 2000     

Economic analysis of paliperidone long-acting injectable for chronic schizophrenia in Portugal

Objective: Patients with chronic schizophrenia suffer a huge burden, as do their families/caregivers. Treating schizophrenia is costly for health systems. The European Medicines Agency has approved paliperidone palmitate (PP-LAI; Xeplion), an atypical antipsychotic depot; however, its pharmacoeconomic profile in Portugal is unknown. A cost-effectiveness analysis was conducted from the viewpoint of the Portuguese National Health Service.

Methods: PP-LAI was compared with long acting injectables risperidone (RIS-LAI) and haloperidol (HAL-LAI) and oral drugs (olanzapine; oral-OLZ) adapting a 1-year decision tree to Portugal, guided by local experts. Clinical information and costs were obtained from literature sources and published lists. Outcomes included relapses (both requiring and not requiring hospitalization) and quality-adjusted life-years (QALYs). Costs were expressed in 2014 euros. Economic outcomes were incremental cost-effectiveness ratios (ICERs); including cost-utility (outcome?=?QALYs) and cost-effectiveness analyses (outcomes?=?relapse/hospitalization/emergency room (ER) visit avoided).

Results: The base-case cost of oral-OLZ was 4447€ (20% drugs/20% medical/60% hospital); HAL-LAI cost 4474€ (13% drugs/13% medical/74% hospital); PP-LAI cost 5326€ (49% drugs/12% medical/39% hospital); RIS-LAI cost 6223€ (44% drugs/12% medical/44% hospital). Respective QALYs/hospitalizations/ER visits were oral-OLZ: 0.761/0.615/0.242; HAL-LAI: 0.758/0.623/0.250; PP-LAI: 0.823/0.288/0.122; RIS-LAI: 0.799/0.394/0.168. HAL-LAI was dominated by oral-OLZ and RIS-LAI by PP-LAI for all outcomes. The ICER of PP-LAI over oral-OLZ was 14,247€/QALY, well below NICE/Portuguese thresholds (≈24,800€/30,000€/QALY). ICERs were 1973€/relapse avoided and 2697€/hospitalization avoided. Analyses were robust against most variations in input values, as PP-LAI was cost-effective over oral-OLZ in >99% of 10,000 simulations.

Conclusion: In Portugal, PP-LAI dominated HAL-LAI and RIS-LAI and was cost-effective over oral-OLZ with respect to QALYs gained, relapses avoided, and hospitalizations avoided.     

The Foreign Exchange Constraints to Economic Adjustment: The case of Iran

While a great deal of work has been devoted to the assessment of the effects of structural adjustment programmes, little is known about the relative importance of external financing and its contribution to the success of these adjustment programmes. This paper examines this question, using Iran's recent experience with an orthodox structural adjustment with its limited access to medium- and long-term external financing. Using the annual data for 1963-94, a three-gap model of growth is formulated and estimated in which economic growth is constrained by domestic saving, foreign exchange and public sector resource availability. The resulting foreign exchange-gap equation demonstrates a sharp trade-off between investment (capacity generation) and the capacity utilization rate. The model is simulated over the period 1995-99 under three growth path scenarios. The size of the foreign exchange gap under these growth path scenarios illustrates quite vividly the centrality of the foreign exchange constraint to the achievement of a modest growth rate in the medium-term.     

Modeling migration barriers in a two-sector framework: A welfare analysis of the hukou reform in China

The present paper constructs a two-sector labor market model for China featuring endogenous internal labor mobility and heterogeneous costs of migration induced by the Chinese household registration system (hukou). The main novelty of our model is to divide migrants into those with more family responsibilities and those with fewer to explain the empirical fact that almost all young people with rural hukou have migrated to cities, while people who stay in the rural area are older and have more family responsibilities. We conduct two policy experiments using the model: one experiment concerned with reducing costs of living for younger migrants and the other for older migrants. The main results are that the first policy would unambiguously increase social welfare, while the reduced-cost policy for older migrants would reduce poverty and inequality although some urban natives may experience a wage reduction.     

Economic liberalization and welfare in a model with an informal sector

The paper reexamines the conventional results relating to inflow of foreign capital, removal of protectionism and structural reform programmes, in a small open economy in terms of a two-sector general equilibrium model with an informal sector. The paper shows that in the presence of labour market distortion and a protectionist policy, inflow of foreign capital may be desirable irrespective of the pattern of trade of the economy due to its favourable impact on welfare. But the welfare implications of tariff reductions and/or structural adjustment programmes, such as deregulating the formal sector labour market, depend crucially on the economy's trade pattern. The paper provides an answer to the question as to whether in a developing economy labour market reform and tariff reform should go hand-in-hand or whether one should precede the other for welfare improvement.
JEL classification: F10, F13, F21, O17.     

The price effect of tariff liberalization: Measuring the impact on household welfare

Trade policy literature has for many years emphasized open policies positive impact on economic growth and development. While these results generally hold when measured on averages, empirical evidence suggests that trade liberalization is unlikely to produce beneficial results across all households. This study adds to the literature by providing an analysis of the distributive effects of tariff liberalization in Mexico. The paper examines the effect of tariff liberalization from the perspective of households both as consumers and factor owners allowing for imperfect domestic price transmission. The results indicate the overall positive effect of tariff liberalization masks significant differences in the distribution of gains both across income levels and across geographic regions. Richer households are found to have gained relatively more. Urban areas, as well as Mexican states closest to the United States border, are also found to be larger beneficiaries while southernmost states have been largely bypassed by the effects of tariff liberalization. Those results can be explained not only in relation to the different endowments of the households, but also by the diverse effects on local prices that has resulted from Mexican trade liberalization.     

The welfare impact of policy interventions in the foodgrain markets in Bangladesh

The paper attempts to estimate the welfare impact of different policy interventions in the foodgrain markets in Bangladesh using an economic surplus approach. Over the period of analysis, 1980–2003, the loss in consumer surplus exceeded the gain in producer surplus plus the gain in government revenue. Therefore, the interventions resulted in a deadweight welfare loss for society. In contrast, in the policy of liberalization, the gain in consumer surplus and in government revenue is larger than the loss in producer surplus, producing a net welfare gain to society.     

Economic implications of better information in a dynamic framework

Summary. We consider an OLG model with accumulation in human capital and analyze the economic implications of information about individual skills. Agents in each period differ by the random innate ability assigned to each individual. When young, all agents are screened for their abilities and this screening process (signal) constitutes a public information which is used in choosing the level of private investment in education. We demonstrate that in the presence of risk sharing markets better information may be harmful for all in equilibrium, and find conditions under which better information either enhances growth or reduces growth.Received: 8 September 2003, Revised: 3 March 2004, JEL Classification Numbers: D80, J24.Correspondence to: Bernhard EckwertWe are pleased to acknowledge the useful comments and suggestions of R. Benabou, Z. Eckstein, E. Helpman, B. Ravikumar and D. Tsiddon. Also, special thanks are given to two anonymous referees. This research was supported by a Grant from G.I.F., the German-Israeli Foundation for Scientific Research and Development.     

Modelling economic circuit flows in a social accounting matrix framework. An application to Portugal

Aggregated Social Accounting Matrices (SAMs) will be built for the Portuguese economy in 1997, 1998 and 1999, based on the country's national accounts statistics. The SAMs will be shown as a working instrument for quantifying the flows in the economic circuit and for simulating the effects resulting from changes in such flows. The economic flows associated with the government subsectors will be emphasized, whilst accounting and fixed-price multipliers will be calculated to facilitate the study of the effects resulting from changes in the government's expenditure, which will also be subjected to a test on their veracity.     

The impact of rural roads and irrigation on household welfare: evidence from Vietnam

We measure the impact of road and irrigation projects on the livelihoods of households in the poorest and most remote areas of Vietnam using difference-in-difference estimators. We find that both rural road and irrigation projects help local households improve the access to safe water and welfare measured by a wealth index. The impact of irrigation projects is found to be larger than the impact of road projects. We also find heterogeneous impacts of road and irrigation projects. Households with higher levels of education tend to benefit more from road projects, while households with lower levels of education are likely to benefit more from irrigation projects.     

以调整经济结构为主线促进经济发展

我国当前经济结构不合理问题比较突出,表现在：产业结构不够协调;技术创新能力不强;企业组织结构落后,经济效益低;城乡和地区经济布局失衡。要实现“十五”期间我国经济持续快速发展,就必须抓住经济结构调整这条主线,着力调整经济结构。其主要任务是：优化产业结构,提高农业、工业、服务业的水平和效益;合理调整生产力布局,促进地区经济协调发展;逐步推进城市化,实现城乡经济良性互动;改善基础设施和生态环境,实现可持     

中国经济增长与“后危机”时代的均衡调整

后危机时代,中国经济增长依然强劲,以投资为代表的扩张模式将延续传统增长动力,全年增长仍可维持在潜在增长水平之上。另一方面,强力的宏观政策激励后,资产泡沫与通货膨胀阴影挥之不去,系统性风险逐步加大,但不至于失控,2011年通胀风险在货币继续正常化条件下将有所回落。后危机时代全球经济表现出了一系列典型化事实,全球范围内金融货币和实体经济的分离、大宗商品的重新定义等,决定了发达国家与新兴市场国家之间再均衡的必然性。在此大背景下,中国经济结构的再均衡过程应该更集中在机制、体制和供给政策,优化投资结构,促进城市化和服务业的深度发展,探索一条可持续的增长之路。