A New General Equilibrium Welfare Measure, with Application to Labor Income Taxes

In this paper we extend the Hicksian compensating variation welfare measure in two directions. First, we adjust the size of the compensating variation in order to account for the fact that the compensating transfers will result in changes in output, as well as in prices, because labor and, in dynamic models, capital will adjust in response to these transfers. Second, we extend the measure to a dynamic setting with possibly time non-separable preferences. We find that these considerations become more significant for the welfare cost of higher labor income taxes as one moves from static to dynamic models, to models with time non-separable preferences, and finally to models with uncertainty.

DAMPAK SAFEGUARD ATAS IMPOR BENANG TERHADAP PEREKONOMIAN: PENDEKATAN MODEL CGE

ABSTRACT: The purpose of this study is to analyze the impact of safeguard on yarn industry’s output, textile and apparel industry as the upper stream’s output, and economics welfare. Government of Indonesia implement safeguard on yarn from 2019 to 2022, to protect domestic industries from an increased quantities as to cause or threaten serious injury to domestic producers of like or directly competitive products. This study uses computable general equilibrium (CGE) model incorporating Indonesia Input - Output Table year 2016. The study exercised two scenario/simulations:(1) assessing safeguard impact; and (2) assessing combination of safeguard and tax incentive impact. The results showed that safeguard on yarn import decrease import value of yarn, but did not increase yarn’s and its upper stream industry’s output. Safeguard tend to decrease the utility or welfare of the economics. In the other hand, policy combination of safeguard and tax incentive decrease yarn import, but did not impact on upper stream industry’s import. The policy combination also increases yarn industry’s output, and increase the utility or welfare of the economics. Keywords: compensating variation, fiscal incentive, textile and apparel industry, utility, welfare ABSTRAK: Penelitian ini bertujuan menganalisis dampak safeguard terhadap produktivitas atau output industri benang dan industri tekstil dan produk tekstil sebagai industri hilir, serta dampak safeguard terhadap kesejahteraan masyarakat dalam perekonomian. Pemerintah Indonesia menerapkan safeguard atas benang pada tahun 2019 s.d. 2022 sebagai bentuk perlindungan terhadap industri tekstil dalam negeri dari peningkatan impor benang yang menyebabkan, atau dicurigai akan mengakibatkan kerugian serius terhadap industri yang bersangkutan. Penelitian menggunakan computable general equilibrium (CGE) model dengan data Tabel I-O Indonesia tahun 2016. Pengujian dilakukan dalam dua simulasi yaitu: (1) shock berupa penerapan safeguard; (2) kombinasi dari shock berupa penerapan safeguard dan fasilitas fiskal berupa pengurangan penghasilan industri untuk perhitungan pajak penghasilan wajib pajak Badan. Hasil pengujian menunjukkan bahwa safeguard menurunkan impor benang, tetapi tidak meningkatkan output domestik dan cenderung menurunkan utilitas/kesejahteraan masyarakat. Safeguard yang dikombinasikan dengan fasilitas pajak penghasilan mampu menurunkan impor, meningkatkan output (walaupun belum sampai tahap ekspor), dan meningkatkan utilitas/kesejahteraan masyarakat. Kata kunci: compensating variation, industri tekstil dan produk tekstil, fiscal incentive, utilitas, kesejahteraan

Quality, Valuation, and Welfare

The analytic structure developed in the first six chapters is applied to quality-differentiated production, quality-differentiated pricing, and consumer welfare analysis. The quality-differentiated production problem is developed as a special case of the multiple-output problem for both nonstochastic and stochastic pricing regimes. The "household production" model of Gorman (1956) and Lancaster (1966) is developed in a conjugate dual framework whose solution for rational individuals obeys the zero-maximum (zero minimum) principle. The nominal concepts of compensating variation and equivalent variation are shown to have real-valued (dual) parallels in the compensating benefit and the equivalent benefit. Real, as opposed to nominal, valuation for traded and nontraded goods is treated in the benefit framework. Directional derivatives of distance functions are used to rationalize the frequently observed empirical discrepancy between willingness-to-pay and willingness-to-accept.

Using Compensating Variation to Measure the Costs of Taxing Cigarette in Iran

Background: The impact of pricing strategies on different socioeconomic groups is not uniform. There is urgency in addressing of characteristics of household demand to make a policy choice in line with development goals. Objectives: This study was done to assess the effect of welfare loss from counterfactual tax-induced cigarette price increases on representative smokers by different expenditure quintiles in Iran. Methods: This analytical study was conducted using pooling cross-sections and compensating variation (CV) to evaluate the costs of taxing cigarettes. The data source used in our study was the Household Income and Expenditure survey (HIES) from 2001 - 2017. We did an almost ideal demand system (AIDS) analysis to estimate elasticities for cigarette demand and compute welfare losses from simulated cigarette price increases by socioeconomic groups. We used STATA version 15.1 (StataCorp, College Station, TX, USA), and Microsoft Excel 2016 to undertake the relevant analyses and estimates. Results: The highest loss was suffered by households of the poorest quintile, who should afford 1.41%, 2.47 %, and 3.20% more budget in the long-run, respectively, as the result of three simulated price increases to stay at the same well-being as before. Conclusions: Concerning direct welfare loss from the cigarette taxation reform in Iran, and focusing on low-income groups, such a policy can be considered as regressive. However, this regressivity can be reduced by informing strategies to redirect sin tax revenues that benefit the poor.

Simulating the Blanchard Conjecture in a Multiperiod Life Cycle Model

In recent writings, Olivier Blanchard has suggested that when the safe rate on government debt is less that the economy's growth rate, additional deficit-financed US federal spending would come at no cost to any future generation and benefits to some. This paper studies this question in a ten-period OLG CGE model with aggregate risk, whose safe rate averages -2 percent annually and growth rate is 0. It shows that welfare losses to future generations resulting from the introduction of pay-go social security, financed with a 15 percent payroll tax, are roughly 20 percent measured as a compensating variation relative to no policy.

Dampak Perubahan Harga Pangan terhadap Tingkat Kesejahteraan Rumah Tangga di Indonesia

<strong>English</strong><br />The most important people's welfare related food problem is increasing food prices. Food price induced welfare change varies by household groups, either by location (urban/rural), poverty status (poor/non-poor), and souces of incomes (agriculture/non-agricultural). The sources of the welfare change may also vary by food categories. This study aims to evaluate changes in household welfare in Indonesia by household groups and the contribution of food categories. The household welfare was measured with the Compensating Variation which was computed by using the Hicksian compensated price elasticities obtained from the estimated Linear Approximation Almost Ideal Demand System using the National Socio-Economic Survey March 2016 data. The results showed that in March 2016, welfare losses in all household groups, in urban areas higher than in rural areas, in poorer households higher than non-poor, in agricultural households higher than non-agricultural and the contribution of each food group to the decline in welfare levels varies among individual household groups. The largest contributor is food prices. Rice is the largest contributor for the rural, the poor and the agricultural households. Animal products, fruit, prepared food and beverage and cigarettes categories are the main contributors for the urban, the not poor and the non-agricultural households.<br /><br /><br /><strong>Indonesian</strong><br />Permasalahan pangan utama yang berkaitan dengan tingkat kesejahteraan masyarakat adalah kenaikan harga pangan. Perubahan tingkat kesejahteraan akibat kenaikan harga pangan berbeda menurut kelompok seperti menurut tempat tinggal (perkotaan/perdesaan), status kemiskinan (miskin/tidak miskin), sumber utama penghasilan rumah tangga (pertanian/nonpertanian). Demikian pula kontribusi masing-masing kategori pangan terhadap perubahan tingkat kesejahteraan berbeda pada kelompok rumah tangga sama. Penelitian ini bertujuan untuk mengevaluasi perubahan tingkat kesejahteraan rumah tangga di Indonesia menurut kelompok rumah tangga dan kontribusi kategori pangan terhadap perubahan tingkat kesejahteraan tersebut. Perubahan kesejahteraan diukur dengan <em>Compensating Variation</em> berdasarkan<em> </em>elastisitas harga terkompensasi Hicksian yang diperoleh dari model permintaan <em>Linear Approximation Almost Ideal Demand System</em> dengan data Survei Sosial Ekonomi Nasional periode Maret 2016. Hasil penelitian menunjukkan bahwa pada Maret 2016, terjadi penurunan kesejahteraan pada semua kelompok rumah tangga, di perkotaan lebih tinggi daripada di perdesaan, pada rumah tangga miskin lebih tinggi dari pada tidak miskin, pada rumah tangga pertanian lebih tinggi dari pada nonpertanian. Kelompok makanan berkontribusi tertinggi terhadap penurunan tingkat kesejahteraan rumah tangga secara umum. Beras berkontribusi tertinggi dalam penurunan tingkat kesejahteraan kelompok rumah tangga perdesaan, miskin, dan pertanian. Kategori pangan hewani, kelompok buah-buahan, makanan dan minuman jadi serta rokok berkontribusi tertinggi untuk kelompok rumah tangga di perkotaan, tidak miskin dan nonpertanian.

THE IMPACT OF RISING FOOD PRICES ON FARMERS’ WELFARE IN INDONESIA

Food prices regularly change due to various factors such as the policy on imports. This paper analyzes the impact of changes in food prices including rice, red onions, and garlic, on farmers’ welfare. The Quadratic Almost Ideal Demand System (QUAIDS) was used to estimate the demand function for food commodities, and the Compensating Variation (CV) was used to estimate the impact of price changes both immediately and in the short-term. This study contributes an idea of how the government makes its policies on food prices and imports, and how they provide benefits for farmers in Indonesia. Data were collected from the 2014 National Socio-economic Survey (SUSENAS). The research results indicated that income improvement led to the increase in rice, red onion and garlic consumption. The dynamics of income, own-price and cross-price elasticity varied, depending on demography, the social economic condition, and the geographic location of the household. The short-term impact of imported products on welfare changes was larger than the immediate impact.

Valuing forest park attributes by giving consideration to the tourist satisfaction

Despite the economic valuation of forest park resources has triggered a great deal of interest to the research community and park management, up to now no attention has been paid to the effect of psychological factors such as tourist satisfaction, which could potentially play a considerable role in contributing to the park resource valuation. This article attempts to fill this niche by carrying out a study on the economic valuation of the Xian-Ren-Tai National Forest Park in China, taking consideration of the tourist satisfaction. In the process, the choice experiment survey was used for data collection. Then, both conditional logit (CL) and random parameter logit models were used in parameter estimations to examine the factors that could potentially impact on the tourists’ willingness to pay. Results indicate that the tourists attach the greatest importance to the park’s natural environment and traffic conditions, and yet the level of tourists’ satisfaction on their tourism experience plays a big part in explaining the valuation results. Tourists who uphold a high level of satisfaction tend to pay more for the park attribute improvement than those with less satisfaction ones. The estimated compensating variation of the overall current park attributes has reached ¥184.95 per person per trip, of which 12.83% shall be attributable to the tourist satisfaction.