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Poverty and Income Distribution in a CGE-Household Micro-Simulation Model: Top-Down/Bottom Up Approach

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  • Luc Savard

Abstract

This paper highlights the idea of combining CGE modeling with a micro-household model (micro-simulation) to generate a convergent solution, thus providing the basis to perform counterfactual analysis of trade and fiscal policies, and their impact on poverty. In recent years, a number of papers have presented differen approaches using CGE models to analyze poverty. Among them, the standard CGE models, which generates changes in the income of representative households in order to allow poverty analysis, albeit with no intra-group changes in the distribution; CGE models with high levels of household disaggregation (3200) and the micro-simulation approach to modeling (with no feedback effect to the CGE model). In this paper, we provide an alternative to these methods that allows a richer micro-household modeling than the first two approaches, while keeping the properties of standard CGE (feedback effect of household behavior) which is usually simplified in micro-simulation context. We also introduce segmented labor markets, with waiting unemployment, inspired by Magnac (1991), which provides a basis for important changes in household income (i.e. when a worker leaves unemployment or becomes unemployed). Global and decomposable poverty analysis and income distribution indicators are computed at base year and after a 50% reduction in trade.

Suggested Citation

  • Luc Savard, 2003. "Poverty and Income Distribution in a CGE-Household Micro-Simulation Model: Top-Down/Bottom Up Approach," Cahiers de recherche 0343, CIRPEE.
  • Handle: RePEc:lvl:lacicr:0343
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    More about this item

    Keywords

    Computable general equilibrium models; estimation; personal income and wealth distribution; measurement and analysis of poverty;

    JEL classification:

    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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