Fh-Orani: A Fiscal Orani With Horridge Extension

This paper describes FH-ORANI, an extended version of the ORANI model that includes a full accounting of all government revenues and expenditures, consolidated across commonwealth, state and local levels of government. A feature of the revenue side is that provision is made for progressivity in direct taxes on labour income. On the expenditure side, spending on unemployment benefits and other kinds of transfer payment depends explicitly on the number of people employed, unemployed or not in the workforce. A theory of labour supply is included to explain the number of people in each of these emplcyment status categories. The income-expenditure link is closed with an aggregate consumption function relating household consumption to disposable income, net of direct taxes and net of the share of capital rentals accruing to foreigners. Finally, ORANI's real rate of return, which guides both the allocation of investment across industries in the short run and the level of industry capital stocks in the long run, is redefined to be net of taxation as well as depreciation. With these features, the FH-ORANI extensions represent not just an accounting exercise, but also a significant enhancement of ORANI's theoretical structure.