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Microsimulation approaches to studying shocks and social protection in selected developing economies

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  • Adu-Ababio, Kwabena

Abstract

In this paper, I calculate automatic stabilization in Ghana, South Africa, and Ecuador to explain how they cushion income amid income and demand shocks. Additionally, I stress-test fiscal policies within these countries to gauge welfare alternatives and insurance. Adopting a discretionary action approach for Ghana, I introduce additional safety nets that improve welfare since the existing system fails shock resistance tests. The use of a microsimulation framework is justified as it can isolate the exact redistributive impact of tax-benefit policies and reforms from a changing environment where such policies operate. Income stabilization ranges from 1% to 22%, while demand stabilization ranges from 4% to 25% across the three countries. I formalize a new concept of poverty stabilization that ranges from nil to 46% to measure vulnerability. Through the study’s results, I reveal that the extent of income insurance needs to be improved in lower- and middle-income countries.

Suggested Citation

  • Adu-Ababio, Kwabena, 2024. "Microsimulation approaches to studying shocks and social protection in selected developing economies," Economic Analysis and Policy, Elsevier, vol. 84(C), pages 1552-1576.
    • Handle: RePEc:eee:ecanpo:v:84:y:2024:i:c:p:1552-1576
    DOI: 10.1016/j.eap.2024.10.007
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    More about this item

    Keywords

    Developing countries; Shocks; Social protection; Fiscal policy; Microsimulation;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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