Economic Impacts of Thailand’s Biofuel Subsidy Reallocation Using a Dynamic Computable General Equilibrium (CGE) Model

For two decades, the Thai government has been promoting ethanol and biodiesel consumption through tax measures and price subsidies. Although this policy has substantially increased the consumption and production of biofuels, there is concern regarding its future fiscal burden. Due to fiscal constraints, the Thai government has planned to completely terminate the biofuel subsidy by 2022. This study aims at examining the economy-wide impacts of removing the biofuel subsidy and also conducting simulations of alternative scenarios, i.e., improving the yield of energy crops and reallocating the burden to expand capital investment in energy crop plantations. A recursive dynamic computable general equilibrium (CGE) model was used as the main quantitative method to conduct four simulation scenarios. This model was validated by comparing the simulation results with the actual 2015–2019 data and showed low values of root mean square error (RMSE). The simulation results indicate that solely terminating the price subsidy would lead to economy-wide contraction. Meanwhile, eliminating the price subsidy along with influencing crop yield improvement and expanding capital investment in energy crop plantations would lead to the lowest negative impacts. Therefore, the termination of the price subsidy should be simultaneously implemented with supply-side expansions.

Financing Future Feed-in Electricity Tariffs from Currently Installed RES-E Generating Capacity

This paper addresses the issue of financing the excess costs of electricity generation from currently installed renewable energy production capacity. We use a dynamic computable general equilibrium model of the Portuguese economy. We consider three issues: the effects of the excess-costs; the effects of annuitizing the costs; and, the effects of different financing mechanisms. Following the logic of the tariff deficit, we recommend the annuitizing of these excess costs. This strategy is justified on distributional grounds. We also find that financing through carbon taxation is a better alternative than passing these excess costs to electricity consumers in the form of higher future prices. This is consistent with the idea that renewable production is not an issue pertaining to the electricity market but rather a part of the national quest for decarbonization. Finally, we show that there is little reason to extend such preferential financing to future renewable capacity installation.

Contribution of VAT to economic growth: A dynamic CGE analysis

Aim/purpose–This study sought to assess the impact of an increased historical fixed VAT rate of 14% to the current rate of 15% on the South African economy. Design/methodology/approach–The method applied in this study was based on a Dynamic Computable General Equilibrium (CGE) model to evaluate the impact of both the VAT rate of 14% and a new rate of 15% on the South African economy. The CGE model has been proven over the years to be a suitable model when evaluating the impact assessment of any shock within an economy. Enhancements were made by the researcher to the direct and indirect tax section of the model, i.e., the direct tax section was disaggregated, such that for both firm and household revenues, a dividend income stream is separated from other income streams. The main reason is to facilitate a detailed analysis of Corporate Income Tax (CIT) and Personal Income Tax (PIT), as well as the latest implemented Dividend Tax (DT).Findings–When VAT was increased from 14% to 15%, the immediate reaction of the shock from the Dynamic CGE model indicates that the Gross Domestic Product (GDP) declined by 0.0002% in 2018, but increased by 0.0028% in the following year (2019). The trend continued until 2021, hence the 1% increase in the VAT tax rate will increase the expected forecast of VAT collection by approximately R3.2 billion on average. Research implications/limitations–The findings of this study will be implemented by the South African government, which will use a dynamic CGE model to assess South Africa’s VAT contribution to the economy. The database of the CGE model was limited to the Social Accounting Matrix (SAM) for 2015. Originality/value/contribution–The study recommends the use of this method for assessing the impact of tax policy changes to the South African economy. The CGE model seems to be the best model as far as the impact assessment of a shock in the econ-omy is concerned. This will assist the South African authorities with their decision mak-ing regarding future VAT revenue. Keywords: South African Revenue Service (SARS), Value Added tax (VAT), Dynamic computable general equilibrium (CGE) model.JEL Classification:H21, C68, E62.

CGE analysis of R&D investment policy considering trade-offs between economic growth and stability

This study analysed economic growth and industrial structure under different conditions on research and development (R&D) investment. To simulate counterfactual scenarios, we built a recursive dynamic computable general equilibrium model named as Technology and Economy Modelling for Innovation Policy assessment (TEMIP) that focuses on private and public R&D investments and their net effects from a macroeconomic perspective. The simulation shows gross domestic product increases rapidly in South Korea when a given amount of expenditure is spent on public R&D activities rather than private R&D. Moreover, our simulation results imply that resource allocation for R&D investments should be elaborated through considering whether the ultimate policy goal is oriented towards economic growth or stability.

Russian Food Import Ban – Impacts on Rural and Regional Development in Finland

This paper investigates the economic effects of the food import ban that Russia imposed vis-à-vis the European Union in 2014 on the development of two structurally different rural regions in Finland. A detailed, rural-urban dataset was compiled for use with a recursive dynamic computable general equilibrium model. In the medium run, the overall economic effects of the trade ban were negative for both regions, and the value added of agriculture and food industries fell notably. When the rigidities of capital availability were relaxed, regional GDP and employment increased in South Ostrobothnia as, for instance, metal industry and construction accelerated economic growth. In North Karelia, where agriculture and food industry account for a minor share of economy, other industries could not compensate the losses the ban caused. Accordingly, the impacts were dependent on the economic structure of the region.

ADAPTATIONS AND MITIGATION POLICIES TO CLIMATE CHANGE: A DYNAMIC CGE-WE MODEL

Recently, South Asian countries have committed their mitigation targets to the United Nations Framework Convention on Climate Change. This study examines the effectiveness of these efforts by developing a dynamic computable general equilibrium-water-energy (CGE-WE) model. Using the GTAP database version 9, it examines how different sectors respond to these policies in South Asia. Besides, it argues that an improved irrigation system can reduce the output losses caused by the mitigation policies. In a nutshell, the cost of improving irrigation system is USD 159.7 million in Bangladesh, 224 million in India, 9.1 million in Nepal, 38.5 million in Pakistan and 10.4 million in Sri Lanka. The proposed adaptation strategy can save more than USD 76.43 billion in the region after fulfilling the region’s commitment toward the global mitigation efforts.

The Economy-Wide Impact of Subsidy Reform: A CGE Analysis

Oil prices fell from around $US110 per barrel in 2014 to less than $US50per barrel at the start of 2017. This put enormous pressure on government budgets within the Gulf Cooperation Council (GCC) region. The focus of GCC economic policies quickly shifted to fiscal reform, including the removal of domestic subsidies on energy products. In this paper, we use a dynamic Computable General Equilibrium (CGE) model to investigate the economic impact of the gradual removal of subsidies on refined petroleum and electricity, with specific reference to the Kingdom of Saudi Arabia (KSA).Our study shows that removing subsidies eliminates a large distortion in the economy. This improves the efficiency of resource use, so that even though employment and capital in most years fall relative to baseline levels, real GDP rises. In addition, we show that fully-funded compensation payments offset the increases in energy prices, leaving economic welfare of the Saudi-national population little affected. Removing the energy subsidies leads to an improvement in the net volume of trade, while leading to a mixed outcome for industries.

Consumption-Savings Trade-Off in the Allocation of Migrants; Remittances and Economic Growth: The Cases of Burkina Faso and Senegal

The objective of this research is to assess the impact on growth of reallocating migrant remittances for savings/investment purposes. It focuses on two countries in the West African Economic and Monetary Union (WAEMU)' zone (Burkina Faso and Senegal). The methodological approach adopted is dynamic Computable General Equilibrium (CGE) modeling that integrates a procedure for reallocating remittances. Simulation results show that an increase in the propensity to save as a result of reallocation of remittances received by households for savings purposes leads to an increase in economic growth.