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The Effects of Current Fiscal Restraint on the Australian Economy: an Applied General Equilibrium Analysis with Imperfect Competition

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  • Kaludura Abayasiri-Silva
  • Mark Horridge

Abstract

The objective of this paper is to examine the short run and long run effects of the reduction of government expenditure on the Australian economy using an applied general equilibrium model, which incorporates economies of scale and imperfect competition. The paper describes a 23-sector computable general equilibrium model of the Australian economy, and covers short-run as well as long-run profit-maximising behaviour of the firm. Economies of scale are incorporated in the model at the industry level and the firm level. The pricing behaviour is modelled as perfectly competitive, monopolistically competitive and in other ad hoc ways, as in Harris (1984). The different assumptions about technology, pricing behaviour and firm entry are combined in various ways to produce a variety of scenarios in our simulations. We present results for three different types of non-competitive regime and compare these with results generated by a traditional version of the same model.

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Bibliographic Info

Paper provided by Victoria University, Centre of Policy Studies/IMPACT Centre in its series Centre of Policy Studies/IMPACT Centre Working Papers with number op-91.

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Date of creation: Apr 1998
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Handle: RePEc:cop:wpaper:op-91

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References

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  1. Harry Bloch, . "Pricing in Australian Manufacturing," Working Papers, Department of Economics, University of Lancaster ec6/92, Department of Economics, University of Lancaster.
  2. Spence, Michael, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 43(2), pages 217-35, June.
  3. Mark Horridge, 2000. "ORANI-G: A General Equilibrium Model of the Australian Economy," Centre of Policy Studies/IMPACT Centre Working Papers, Victoria University, Centre of Policy Studies/IMPACT Centre op-93, Victoria University, Centre of Policy Studies/IMPACT Centre.
  4. Devarajan, Shantayanan & Rodrik, Dani, 1991. "Pro-competitive effects of trade reform : Results from a CGE model of Cameroon," European Economic Review, Elsevier, Elsevier, vol. 35(5), pages 1157-1184, July.
  5. Randall Wigle, 1988. "General Equilibrium Evaluation of Canada-U.S. Trade Liberalization in a Global Context," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 21(3), pages 539-64, August.
  6. Kaludura Abayasiri-Silva & Mark Horridge, 1996. "Economies of Scale and Imperfect Competition in an Applied General Equilibrium Model of the Australian Economy," Centre of Policy Studies/IMPACT Centre Working Papers, Victoria University, Centre of Policy Studies/IMPACT Centre op-84, Victoria University, Centre of Policy Studies/IMPACT Centre.
  7. Harrison, Glenn W & Rutherford, Thomas F & Tarr, David G, 1997. "Quantifying the Uruguay Round," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 107(444), pages 1405-30, September.
  8. Harris, Richard, 1984. "Applied General Equilibrium Analysis of Small Open Economies with Scale Economies and Imperfect Competition," American Economic Review, American Economic Association, American Economic Association, vol. 74(5), pages 1016-32, December.
  9. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, American Economic Association, vol. 67(3), pages 297-308, June.
  10. Devarajan, Shantayanan & Rodrik, Dani, 1989. "Trade Liberalization in Developing Countries: Do Imperfect Competition and Scale Economies Matter?," American Economic Review, American Economic Association, American Economic Association, vol. 79(2), pages 283-87, May.
  11. Nguyen, T.T & Wigle, R.M., 1988. "Trade Liberalization With Imperfect Competition: The Large And Small Of It," Working Papers, Wilfrid Laurier University, Department of Economics 89128, Wilfrid Laurier University, Department of Economics.
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