Nils Schneekloth

FUNDING 2nd Project Meeting December 9, 2005, Leuven

WP 4: Testing the EU-wide equity and efficiency effects of alternative pricing and

revenue use strategies

CGEurope is a Spatial Computable General Equilibrium model

• Final demand represented by utility maximizing household

• Production presented by profit maximizing firms

• Production is diversified, with different varieties produced at different

locations

• 1 sector producing a diversified output of tradable goods under

monopolistic competition with economies of scale.

• 1 sector producing a homogeneous local good under perfect competition

with constant returns to scale.

Main features of CGEurope

Main features of CGEurope (continued)

• Inputs:

- Local goods

- Tradable goods (bought from all locations)

- Primary production factor

• Flexible prices clear all markets simultaneously

• Firms and households choose supply sources according to relative prices, which include

interregional transfer costs

• Income-expenditure loop is closed

• International trade imposes extra costs on trade due to international and cultural impediments

• Envisaged to use 1373 regions, NUTS-3 and comparable regions for Eastern Europe plus

Rest of World

• Comparative-static analysis

How do transport policies enter ?

• Freight cost changes affect prices in respective origins and destinations directly and prices in other locations indirectly

• Generalised travel cost changes affect costs of communication between suppliers and customers, which in turn affect returns in the origin and costs in the destination directly and prices in other locations indirectly

• Higher output prices, lower input prices or lower costs of business travel of firms translate into higher factor incomes and, hence, higher households‘ utility

• Lower consumer goods prices reduce the price index and, hence, increase households‘ utility

Evaluation of scenarios

• Study of impacts of transport pricing mark-ups on GDP and the impact on the territorial cohesion of the European regions

• Analysis of impacts of varying transport price mark-ups• Analysis of alternative revenue uses

– Transport projects to be co-funded by revenue– Redistribution as per capita payments of revenue

Analysis of alternative revenue uses

• Redistribution of revenue as fixed amounts per capita• Redistribution of revenue as payments proportional to

income (similar to a labour tax reduction)• Redistribution can be made either

– on European community scale – or within the nation, in which the revenue is generated– or any other aggregate of nations or regions, in which revenue is

generated

IASON scenario A53: Implementation of the TEN priority projects

Scenario B2: SMCP applied to all modes of transport

IASON scenario E2: TIPMAC SMCP+TEN implementation

Implementation of the priority projects:Welfare gain vs GDP/capita in the year

2000

SMCP applied to all modes of transport:Welfare gain vs GDP/capita in the year

2000

Identified data needs and sources for the CGEurope

• Regional data– GDP, population (Source: Eurostat)

• Trade– Interregional trade in commodities in Euros (Source: ETIS-BASE,

Eurostat)– International trade in services (Source: GTAP)

• Transport costs– Freight costs by NUTS-3 region pair and mode of transport

(Source: RRG)