Households heterogeneity in a global CGE model: an illustration with the MIRAGE poverty module

Type Conference Paper - 14th Annual Conference on Global Economic Analysis, Venice, Italy
Title Households heterogeneity in a global CGE model: an illustration with the MIRAGE poverty module
Publication (Day/Month/Year) 2011
City Venice
Country/State Italy
The objective of this paper is to develop a version of the MIRAGE model of the world economy which includes households heterogeneity in order to study the impact of trade liberalization on real income and welfare at the household level and to evaluate the poverty impact of such international reform in various developing countries. In ve developing countries (Brazil, Pakistan, Tanzania, Uruguay, Vietnam), the model disaggregates the representative household into up to 40 households by country, with groups based on some characteristics that may be relevant within a Computable General Equilibrium (CGE) model, such as income and consumption structures. Disaggregated statistical data come from households' surveys. The new model better captures the behavior of the public agent in terms of revenues collected and expenditures. Aside from MIRAGE, a poverty module uses the CGE results on consumption prices, re- munerations of productive factors, public and private transfers to evaluate changes in households' real income and poverty line, with detailed information coming from house- holds survey. We illustrate the development of this poverty module of the MIRAGE model by studying the impact of full trade liberalization. This study concludes that: (i) while the impact of full trade liberalization may be small at the macroeconomic level, the e ect on real income may be quite substantial at the household level with large dispersion across households; (ii) the major channel of transmission of trade lib- eralization on households' real income is productive factors' remuneration; (iii) various domestic policies simultaneously implemented to trade liberalization like modi cation of public transfers to households or changes in income taxation may drastically change the picture; (iv) full trade liberalization may reduce poverty in developing countries with major cut in poverty headcount in Vietnam and minor reduction in Brazil and Tanzania.

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