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Linking CGE and microsimulation models: a comparison of different approaches


  • Giulia Colombo

    () (Department of Economic and Social Science - Catholic University of Milan and SiNSYS NV/SA)


In the literature that studies income inequality and poverty, a recent development has been the development of models that link together a macroeconomic model (usually a Computable General Equilibrium (CGE) model) and a microsimulation model. Linking the two types of model allows the modeller to take into account full agents? heterogeneity, whilst at the same time considering the general equilibrium effects of a proposed policy reform. In this paper, I first review in detail three approaches to building linked CGE-microsimulation models: one in accordance with the fully integrated approach, and two following the layered approach (the so-called Top-Down and Top-Down/Bottom-Up approaches). The principal goal of the paper is to present a considered evaluation of the merits and demerits of these alternative methods currently used to link CGE and microsimulation models. To do so I use all three approaches to model the macro- and micro-economic impacts of a policy shock to an archetypical economy (constructed using fictitious data), and compare the results. This analysis highlights the importance of (i) consistency between the underlying macro- and micro-data; and (ii) the precise mechanisms by which feedback effects are passed between the macro and micro models. I develop this latter point further by detailed analysis of the TD/BU approach outlined by Savard (2003), leading to a proposed refinement in the way that feedback effects from the micro level of analysis are incorporated back into the CGE model.

Suggested Citation

  • Giulia Colombo, 2010. "Linking CGE and microsimulation models: a comparison of different approaches," International Journal of Microsimulation, International Microsimulation Association, vol. 3(1), pages 72-91.
  • Handle: RePEc:ijm:journl:v:3:y:2010:i:1:p:72-91

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    References listed on IDEAS

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    Cited by:

    1. Andrew Feltenstein & Luciana Lopes & Janet Porras Mendoza & Sally Wallace, 2013. "“The Impact of Micro-simulation and CGE modeling on Tax Reform and Tax Advice in Developing Countries”: A Survey of Alternative Approaches and an Application to Pakistan," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1309, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    2. Maheshwar Rao & Robert Tanton & Yogi Vidyattama, 2013. "‘A Systems Approach to Analyse the Impacts of Water Policy Reform in the Murray-Darling Basin: a conceptual and an analytical framework’," NATSEM Working Paper Series 13/22, University of Canberra, National Centre for Social and Economic Modelling.
    3. Li, Jinjing & O'Donoghue, Cathal, 2012. "A methodological survey of dynamic microsimulation models," MERIT Working Papers 002, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    4. Jann Lay, 2010. "Sequential macro-micro modelling with behavioural microsimulations," International Journal of Microsimulation, International Microsimulation Association, vol. 3(1), pages 24-34.
    5. Yogi Vidyattama & Maheshwar Rao & Itismita Mohanty & Robert Tanton, 2014. "Modelling the impact of declining Australian terms of trade on the spatial distribution of income," International Journal of Microsimulation, International Microsimulation Association, vol. 7(1), pages 100-126.
    6. Liyanaarachchi, Tilak S. & Naranpanawa, Athula & Bandara, Jayatilleke S., 2016. "Impact of trade liberalisation on labour market and poverty in Sri Lanka. An integrated macro-micro modelling approach," Economic Modelling, Elsevier, vol. 59(C), pages 102-115.
    7. Andrew Feltenstein & Luciana Lopes & Janet Porras-Mendoza & Sally Wallace, 2014. "Modeling tax reform in developing countries," Chapters,in: Taxation and Development: The Weakest Link?, chapter 3, pages 69-102 Edward Elgar Publishing.
    8. van Ruijven, Bas J. & O’Neill, Brian C. & Chateau, Jean, 2015. "Methods for including income distribution in global CGE models for long-term climate change research," Energy Economics, Elsevier, vol. 51(C), pages 530-543.
    9. Cecilia Llambi & Silvia Laens & Marcelo Perera, 2016. "Assessing the Impacts of a Major Tax Reform: a CGE-microsimulation analysis for Uruguay," International Journal of Microsimulation, International Microsimulation Association, vol. 9(1), pages 134-166.
    10. Matteo Richiardi & John Cockburn & Hélène Maisonnave & Luca Tiberti, 2016. "Editorial," International Journal of Microsimulation, International Microsimulation Association, vol. 9(1), pages 1-4.
    11. repec:eee:eneeco:v:65:y:2017:i:c:p:87-97 is not listed on IDEAS
    12. Miriam Frey, 2016. "Income Inequality Effects of Ukraine’s Trade Liberalization with the EU. Are there 'two Ukraines'?," EcoMod2016 9664, EcoMod.

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