Are agricultural support policies harmful to the environment? Evidence from Japanese farm-level policy simulation

This study presents the environmental impacts of agricultural policy instruments as evidence from an ex-ante farm-level policy simulation model in Japan. Simulations did indicate that all types of agri-environmental payments achieved the environmental benefit for the land studied. Conversely, market price support does not inevitably increase nitrogen runoff or greenhouse gas emissions at any time since paddy fields themselves have the function of purifying water pollution and work as a biodiversity nursery. The direction and magnitude of the policy impacts are an empirical matter that should be considered carefully at a local level.

The Effect of COVID-19 to Credit Risk and Capital Risk of State-Owned Bank in Indonesia: A System Dynamics Model

The global COVID-19 pandemic has greatly affected people, especially in the economic and banking sectors. The Indonesian Financial Services Authority (Otoritas Jasa Keuangan, OJK) issued a credit restructuring policy, effective from March 2020 to March 2022, to reduce credit and bank capital risk. This study proposes the bank risk scenario after the credit restructuring policy of the OJK moratorium in March 2022 and proposes the internal bank policy simulation to mitigate credit and capital risks in terms of Non-Performing Loan (NPL) and Capital Adequacy Ratio (CAR). The difficulty of this study is how to develop the risk scenario and to simulate the bank risk mitigation policy after the policy moratorium, while the COVID-19 pandemic is still ongoing and the economy is not yet normal. To that purpose, this study uses a system dynamics methodology with Powersim Studio 10© software that is able to make scenarios on the level of credit risk (NPL) and bank capital (CAR) and able to simulate internal bank policy to overcome the risk by considering the environmental and policy changes. Based on the policy simulation, it is recommended that bank can implement the restructuring policy to control the credit risk and strengthening the NPL monitoring activity in order to manage and decrease the loan impairment expenses. To increase CAR, the result shows that the combined policy consists of the NPL monitoring program, the interest rate and the operating cost management program is able to produce a significant increase in bank’s capital (CAR). The original contribution of this study is to provide new model of credit and capital risk scenario and risk mitigation simulation during the COVID-19 pandemic. The advantage of this study is that the model can be tested and implemented to other banks.

Fiscal reform: a computable general equilibrium (CGE) analysis for the Kingdom of Saudi Arabia

Purpose This paper aims to provide a quantitative assessment of the broad economic effects of tax policy reform in the Kingdom of Saudi Arabia (KSA). Design/methodology/approach Using a dynamic computable general equilibrium (CGE) model of the KSA, three simulations are run. The first simulation is the baseline simulation, which generates growth paths of the Saudi economy in the absence of tax reform. In developing the baseline simulation, this study incorporates forecasts from the International Monetary Fund. The remaining simulations are policy simulations. A policy simulation deviates from the baseline simulation in response to a policy change. In the first policy simulation, this study introduces a value-added tax (VAT) that generates SAR 35bn. This study assumes budget neutrality with the additional tax revenue transferred to households via a lump sum payment. In the second policy simulation, this study introduces a corporate income tax that generates SAR 35bn. This study then calculates and compares the distortion these taxes introduce into the economy. Findings This study finds that although the introduction of new taxes increases government tax revenue, markets are distorted lowering efficiency and production. An introduction of VAT increases the cost of consumption relative to the cost of production. As a consequence, the real cost of labour increases lowering employment in the short run. Employment moves to the baseline, as wages adjust capital and real gross domestic product (GDP) is below base throughout the simulation period. The second simulation is an increase in the corporate tax rate with lowers the post-tax rates of return investors receive. This simulation shows that the negative impact on investment, capital and GDP is larger with the introduction of a corporate tax than with the VAT. Research limitations/implications Literature focusing on tax policy reform in the Gulf Cooperation Council and, specifically, Saudi Arabia is limited. This paper contributes to the literature by focusing on the following: understanding the impact and mechanisms through which changes in taxation impact the economy more generally; understanding the potential harm caused to allocative efficiency and production due to taxes; and ways in which fiscal reform might complement other reforms such as efforts to diversify the economy, labour market and energy price reforms. This improves the information base available to policymakers charged with designing an optimal tax system that meets all future requirements of a country such as the KSA. Originality/value The authors developed and applied a CGE model for the KSA to analyse the impact of VAT and corporate tax on the Saudi economy. To the best of the authors’ knowledge, there are no recent CGE models for Saudi Arabia that have been used for tax policy or quantifying the potential harm to the economy when new taxes are introduced.