ISIM-MAMS Exercises: Interpretation of Results; Tax Increase and Subsidies Elimination with HD/Infrastructure Spending

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1 ISIM-MAMS Exercises: Interpretation of Results; Tax Increase and Subsidies Elimination with HD/Infrastructure Spending Martín Cicowiez (CEDLAS-UNLP) Marco V. Sánchez (UN-DESA) Presentation for the Final Workshop of the Project Strengthening Macroeconomic and Social Policy Coherence through Integrated Macro-Micro Modelling, Amman, June 3-5, 2014 Outline Introduction Definition of Scenarios shocks, closure, and rules/policies Key Model Equations and Variables Results 1

2 Introduction In this presentation, we show, step by step, how to perform and analyze MAMS simulations for Jordanusing the ISIM-MAMS user-friendly interface. In order to follow the exercises, it is necessary to have successfully installed: GAMS ISIM-MAMS Jordan 2006 dataset Definition of Scenarios: Shocks taxdir-q5-hd= increase of 5 percentage points in tax-dir of richest 20% rate; with HD spending. taxdir-q5-infra= increase of 5 percentage points in tax-dirof richest 20% rate; with infrastructure spending. subcut-bakery = elimination of subsidy to c- bakery; with spending in infrastructure. subcut-fuel= elimination of subsidy to c-refinery; with spending in infrastructure. subcut-combi = sub-bakery + sub-fuel 2

3 Definition of subcut-bakeryscenario: Macro Closure Government (govclossim) = government spending is the clearing variable for the government budget. Savings-Investment (siclossim) = household investmentis the clearing variable (i.e., endogenous real growth, GDP and absorption shares). Rules for Government: Expenditures and Incomes not selected in govclossim Should be specified for government expenditures and incomes that are not used to balance the government budget expenditures in govspndrulesim incomes in govrecrulesim 3

4 First, Selection of Defaults Using BASE The base scenario can be used to impose default selections for non-base simulations if no selection is made for the base, it is identical to the pre-programmed reference scenario in our case, imposing values for base speeds up scenario definition according to the SAM, government consumes several commodities Selection of Defaults Using BASE ; govrecrulesim tax-com = fixed rates at ref values tax-imp= fixed rates at ref values tax-dir= fixed rates at ref values trgovrow= ref scenario values trgovngov= ref scenario values gborz= ref scenario values gbormsz = ref scenario values fborgov = ref scenario values 4

5 Selection of Defaults Using BASE ; govspndrulesim-- ref scen(real) values c-agr c-textiles c-clothing c-leather c-refinery c-chemicals c-rubplast c-nonmetmin c-metals c-machinery c-vehicles c-othmnf c-elect c-watergov c-construc c-trade c-hotelrest c-transp c-edupgov c-edusgov c-edutgov c-healthgov c-publicadm c-othinfra c-othsvc trngovgov trrowgov Selection of Defaults Using BASE ; ngovpayrulesim trngovrow = ref scenario values trfacrow = ref scenario values fborngov = ref scenario values fdiz= ref scenario values 5

6 Definition of Scenario subcut-bakery: Rules Gov Spending (govspndrulesim) c-othinfra = endogenous gov consumption For the rest, we keep BASE default! Definition of Scenario subcut-bakery: Rules Gov Receipts (govrecrulesim) tax-com = exogenous tax rates For the rest, we keep BASE default! 6

7 Definition of Scenario subcut-bakery: Rules Non-GovPayments (ngovpayrulesim) Question: do we need to introduce any change? Key Aspects of Base Year: Subsidy Rates (negative commodity taxes) TQ c-bakery c-refinery

8 Key Aspects of Base Year: Direct Tax Rates model variable = TINS hhd-q1 5.3% hhd-q2 5.7% hhd-q3 5.6% hhd-q4 6.6% hhd-q5 10.1% Definition of Scenarios: Tax Rates (taxratesim) taxratesim(sim,tax,ac,t1) rate for tax type tax imposed on acp in t taxdir-q5-hd tax-dir hhd-q taxdir-q5-infra tax-dir hhd-q subcut-bakery tax-com c-bakery subcut-fuel tax-com c-refinery subcut-combi tax-com c-bakery subcut-combi tax-com c-refinery

9 Key Equations and Variables: Composite Commodity Price ( 1 ) PQ tq QQ = PD QD + PM QM c c c c c c c composite domestic sales import commodity value for = value supply ( LCU ) domestic + (LCU) net of sales tax output (LCU) Key Equationsand Variables: Household Consumption Demand QH c, h = LES( EH h, PQc ) quantity of household demand from consump-household = LES tion ex- h for com- penditure, modity c prices 9

10 Key Equations and Variables: Government Income YG = TINS YI + tf YF + ta PA QA t i, t i, t f, t f, t a, t a, t a, t i INSDNG f F a A + tva PVA QVA + tm pwm QM a A c CE a, t a, t a, t c, t c, t c, t c CM + te PWE QE EXR + tq PQ QQ c, t c, t c, t t c, t c, t c, t c C + YIF + TRII + TRNSFR gov, row, t EXRt gov, f, t gov, i, t f F i INSDNG Key Equationsand Variables: Government Savings GSAV = YG EG governgoverngovern ment re- ment rement = current current savings expen- ditures revenue 10

11 t ' T Key Equations and Variables: Total Factor Productivity QVA = ALPHAVA δ fprd QF i, f, t i INS a, t = a, t 0 f FCAP QFINSi, f i INS ALPHAVA ALPHAVA2 tfptrdwtt, t ' TRDGDPt ' 0 TRDGDP tfpelastrd ( ) va a, t a, t f, a f, a, t f, a, t f F a QFINS ρ va a 1 - ρ va a tfpelasqg a, f, t Important! Before Running the Setup, Adjust Reporting Period to

12 Macro Results; average growth rate (%) taxdir-q5- taxdir-q5- hd infra Item 2006 base Absorption 156, Consumption - private 84, Consumption - government 26, Fixed investment - private 32, Fixed investment - government 11, Stock change 1,133 Exports 55, Imports 89, GDP at factor cost 108, Total factor employment (index) Real exchange rate (index) MDG Indicators in goal2015 base subcutbakery subcutfuel subcutcombi taxdir-q5- taxdir-q5- hd infra subcutbakery subcutfuel subcutcombi mdg mdg mdg mdg mdg7w mdg7s Units: % for MDGs 1, 2, 7a, and 7b; per 1000 for MDG 4; per 100,000 for MDG 5 Why, in some cases, there is a deterioration? hint: analyze the determinants. 12

13 Sectoral Results: Government Investment; GDP Share 2025 (%) taxdir-q5- taxdir-q5- hd infra 2006 base inv-edupgov inv-edusgov inv-edutgov inv-watergov inv-healthgov inv-publicadm inv-othinfra Real Per Capita Consumption; average growth rate (%) Household 2006 base Units 2006 = JD. subcutbakery subcutfuel subcutcombi taxdir-q5- hd taxdir-q5- infra subcutbakery subcutfuel subcutcombi hhd-q1 7, hhd-q2 10, hhd-q3 13, hhd-q4 16, hhd-q5 27, total 15,

14 Poverty Results 2025 Scenario taxdirq5-hd; poverty rate (%); moderate poverty line obs U +S +W1 +W2 +M +TRGOV +TRROW +RESID base taxdir-q5-hd 14