The paper presents a multisectoral CGE model with overlapping generations in which intertemporal optimization by households and firms determines savings and investment under perfect foresight. We calibrate the model to Austrian data and simulate a unilateral tariff liberalization scenario. We find that unilateral tariff reductions are expansionary in the long-run but involve considerable diversity in sectoral adjustment. Foreign debt increases in the long-run, causing an improvement in the trade balance. In terms of welfare, some old generations gain at the expense of young and future generations. Budgetary policies are shown to be crucial for several effects.
We explore liberalization of trade in differentiated commodities using a model featuring monopolistic competition and capital accumulation. We identify a mechanism of ‘cumulative causation' in investment and an associated externality leading to under-accumulation. We provide long-run analytical results for a stylized core model and offer a quantitative treatment of transitional and sectoral issues using a disaggregate computational model. The aggregate welfare gains from unilateral liberalization are about three times larger than in the competitive case with constant returns, and they exhibit a characteristic pattern of generational incidence. Small export subsidies may be self-financing.
This article proposes to measure the welfare effects of Austria's membership of the EU. In addition to the traditional sectoral reallocation effects of open trade, our computations take into account a number of effects not usually measured: expected capital accumulation, saving, and income redistribution across generations. EU membership involves trade integration (lower trade costs, a common external tariff), adopting the common agricultural policy, and membership contributions to the EU. The gains from trade integration and the adaption of the common agricultural policy are partly offset by the burden of contribution payments. The net welfare gain) measured in terms of an equivalent permanent income stream, is 1.21% of GDP. This aggregate figure masks sizeable distribution effects. As expected, agriculture is particularly hard hit. Moreover, membership has a tendency to favour the old as well as future generations at the expense of those entering economic lift at the time of accession. We conclude that the ultimate gains from EU membership will depend on how these distribution issues are solved and how the budgetary cost is financed.
Capital reallocation from unprofitable to profitable firms is a key source of productivity gain in an innovative economy. We present a model of credit reallocation and focus on the role of banks: Weakly capitalized banks hesitate to write off non-performing loans to avoid a violation of regulatory requirements or even insolvency. Such behavior blocks credit to expanding industries and results in insufficient credit reallocation across sectors and a distorted capital allocation. Reducing the cost of bank equity, tightening capital requirements, and improving insolvency laws relaxes constraints and mitigates distortions.
Discusses the German perspective on eastern European Union (EU) expansion. Accounts on the EU expansion of original single market state; Evaluation on the consequences of EU enlargement; Expectation on the benefits and costs of enlargement distribution across present EU member countries.
Demographic projections forecast a doubling of the dependency ratio until 2050 as well as an increase of 10% in population due to longer life expectancy in Switzerland. To quantify the effects on social security and public finances, we use a computational overlapping generations model with five margins of labor supply: labor market participation, hours worked, job search, retirement, and on-the-job training. Starting with a passive fiscal strategy, we find that aging might reduce per capita income by 20 percent and necessitate a long-run increase of wage taxes and social security contributions by 21 percentage points. A comprehensive reform package, including an increase in the effective retirement age to 68 years and several other measures, may limit the tax increases to 4 percentage points of value added tax and reduce the decline of per capita income to less than 6%.
This paper discusses transition strategies that might be used in moving from an
income tax to consumption based business taxes in the form of an R-base cash-flow
tax, an R+F-base tax, or an ACE (allowance for corporate equity) tax. While these three taxes have attractive neutrality properties, moving from the status quo to a new system often involves a diffi cult trade-off between short-run losses and longrun gains. We consider two alternative ways of spreading the gains and costs of reform more evenly across generations. Defi cit fi nancing of the large revenue loss that occurs immediately after reform allows the smoothing of wage tax rates over time and the elimination or reduction of short-run income losses. Alternatively, a system of delayed deductions requires fi rms to carry forward with interest some of the large deductions that are newly available after the enactment of a major tax reform. In shifting tax revenue from the future to the present, such policies are politically appealing, as they trade somewhat reduced future income gains for improved economic performance immediately after reform.
