IMMPA: Integrated Macroeconomic Model for Poverty Analysis · 2015. 11. 18. · and long-run...
Transcript of IMMPA: Integrated Macroeconomic Model for Poverty Analysis · 2015. 11. 18. · and long-run...
![Page 1: IMMPA: Integrated Macroeconomic Model for Poverty Analysis · 2015. 11. 18. · and long-run •Poverty gap decreases in short, medium and long run-run (for both consumption and income-based](https://reader036.fdocuments.net/reader036/viewer/2022071117/6000f5b984bf4379904465e3/html5/thumbnails/1.jpg)
Part 3: “Hands-on”
IMMPA:
Integrated Macroeconomic Model
for Poverty Analysis
Workshop EAE 5918
IPE/USP – 2009
Alejandro Izquierdo and
Eduardo Haddad
![Page 2: IMMPA: Integrated Macroeconomic Model for Poverty Analysis · 2015. 11. 18. · and long-run •Poverty gap decreases in short, medium and long run-run (for both consumption and income-based](https://reader036.fdocuments.net/reader036/viewer/2022071117/6000f5b984bf4379904465e3/html5/thumbnails/2.jpg)
l Government
è Sets tax rates on domestic sales, imports,
income and profits.
è Allocates public expenditure to current
consumption and investment (infrastructure,
health, education).
è Public spending has three types of effects.
4Conventional aggregate demand effects
(impact on consumption);
![Page 3: IMMPA: Integrated Macroeconomic Model for Poverty Analysis · 2015. 11. 18. · and long-run •Poverty gap decreases in short, medium and long run-run (for both consumption and income-based](https://reader036.fdocuments.net/reader036/viewer/2022071117/6000f5b984bf4379904465e3/html5/thumbnails/3.jpg)
4 Effect on private investment (complementarity
between public investment in infrastructure and
private capital formation);
4Supply-side effect. Private production
(agriculture and urban formal sectors) depends
on the stock of government capital in
infrastructure and health.
è Deficit financing
4 Various options are possible.
4 Prototype: financing is given from “below the
line.”
![Page 4: IMMPA: Integrated Macroeconomic Model for Poverty Analysis · 2015. 11. 18. · and long-run •Poverty gap decreases in short, medium and long run-run (for both consumption and income-based](https://reader036.fdocuments.net/reader036/viewer/2022071117/6000f5b984bf4379904465e3/html5/thumbnails/4.jpg)
4 Flow budget constraint determines lump-sum
transfers.
4 Implications: focus on the income effects of
induced changes in the budget;
4 No changes in distortionary taxes and
incentives.
![Page 5: IMMPA: Integrated Macroeconomic Model for Poverty Analysis · 2015. 11. 18. · and long-run •Poverty gap decreases in short, medium and long run-run (for both consumption and income-based](https://reader036.fdocuments.net/reader036/viewer/2022071117/6000f5b984bf4379904465e3/html5/thumbnails/5.jpg)
Debt Relief: Savings allocated to
Transfers
• Immediate demand effects:
YHh Ch , Hh (money holdings)
• Effects on government: Reduction in confiscation risk:
IF * FL_G , TAXREV Z
• Effects on credit market:
Z DL_P PR IL
• Pk has not increased as fast lower net worth
![Page 6: IMMPA: Integrated Macroeconomic Model for Poverty Analysis · 2015. 11. 18. · and long-run •Poverty gap decreases in short, medium and long run-run (for both consumption and income-based](https://reader036.fdocuments.net/reader036/viewer/2022071117/6000f5b984bf4379904465e3/html5/thumbnails/6.jpg)
2
1,1,
1,1,
1,
1
11
1
1
TXREV
ERFLFI
TXREV
ERFLFI
IL
inctaxIK
PINF
RGDP
RGDP
K
KKZ
GG
DD
GG
D
KAPZ
FC
FC
INF
INFP
IK
P
ACCK
PPP reYFLFERDLZPK
11
)(
PR
DL
DLNWPR pr
P
PPcprpr
pr
![Page 7: IMMPA: Integrated Macroeconomic Model for Poverty Analysis · 2015. 11. 18. · and long-run •Poverty gap decreases in short, medium and long run-run (for both consumption and income-based](https://reader036.fdocuments.net/reader036/viewer/2022071117/6000f5b984bf4379904465e3/html5/thumbnails/7.jpg)
Effects on goods market:
• Agric. Traded:
IL effective wage for U-AT,
So U-AT X-AT
• Agric. Non-Traded:
U-AN (fall in product wage ) X-AN
• Short run though, fall in X-AN. Why? K-G (I-G, PQ-P)
• Private formal:
Z K-P MPS S
S MPU-P U-P (product wage )
Final result: X-P
![Page 8: IMMPA: Integrated Macroeconomic Model for Poverty Analysis · 2015. 11. 18. · and long-run •Poverty gap decreases in short, medium and long run-run (for both consumption and income-based](https://reader036.fdocuments.net/reader036/viewer/2022071117/6000f5b984bf4379904465e3/html5/thumbnails/8.jpg)
Effects on goods market, ctd:
• Short-run, though, fall in X-P. Why?
• P_US> P_T2 w-s to keep effort levels S. Then, U-P
• Also, K-G short-run K-P
• Informal:
• Short run: U-P U-I X-I
• Long run: U-P (S) U -I X-I (but increases product wage and consumption wage)
• Exports: E-A (less output given higher labor costs), E-P (higher domestic consumption)
• Imports: M-A, M-P
![Page 9: IMMPA: Integrated Macroeconomic Model for Poverty Analysis · 2015. 11. 18. · and long-run •Poverty gap decreases in short, medium and long run-run (for both consumption and income-based](https://reader036.fdocuments.net/reader036/viewer/2022071117/6000f5b984bf4379904465e3/html5/thumbnails/9.jpg)
GPPPP KUKSefCESCESCESV ,,,
2T
,1
ef
USS
wm
PWefef
![Page 10: IMMPA: Integrated Macroeconomic Model for Poverty Analysis · 2015. 11. 18. · and long-run •Poverty gap decreases in short, medium and long run-run (for both consumption and income-based](https://reader036.fdocuments.net/reader036/viewer/2022071117/6000f5b984bf4379904465e3/html5/thumbnails/10.jpg)
Migration:
• EwA<EwU MIGR
• This eventually puts upward pressure on
W-I/P_UU
Skills acquisition:
• EwS<EwU SKL
• UNEMP?
• Short-run: S-P UNEMP
• Long-run: S-P UNEMP (even with SKL)
![Page 11: IMMPA: Integrated Macroeconomic Model for Poverty Analysis · 2015. 11. 18. · and long-run •Poverty gap decreases in short, medium and long run-run (for both consumption and income-based](https://reader036.fdocuments.net/reader036/viewer/2022071117/6000f5b984bf4379904465e3/html5/thumbnails/11.jpg)
,1 1
1,
1,
1,1,
SKL
KEw
Ew
U
WTWTSKL
S
E
U
Se
U
UFUI
sE
Wedu
,1
ln
1
2,
1,
1,
MIGRU
U
Ew
EwUMIGR
R
R
M
A
UMMRt
![Page 12: IMMPA: Integrated Macroeconomic Model for Poverty Analysis · 2015. 11. 18. · and long-run •Poverty gap decreases in short, medium and long run-run (for both consumption and income-based](https://reader036.fdocuments.net/reader036/viewer/2022071117/6000f5b984bf4379904465e3/html5/thumbnails/12.jpg)
Financial Markets:
• Higher money holdings, including as share of total assets (transactions effect)
• Higher loan interest rates
• Increase in loans for higher investment financed with higher foreign bank loans (increase in deposits not sufficient, rem. DD/W)
• Increase in foreign exchange reserves (lower trade balance more than compensated by private banks capital inflows)
![Page 13: IMMPA: Integrated Macroeconomic Model for Poverty Analysis · 2015. 11. 18. · and long-run •Poverty gap decreases in short, medium and long run-run (for both consumption and income-based](https://reader036.fdocuments.net/reader036/viewer/2022071117/6000f5b984bf4379904465e3/html5/thumbnails/13.jpg)
.
)( 1,11,1,
1,
BPG
h
h
BGGP
h
h
i
iiii
FLLFFLFD
FLIFFFFLFILFFI
FDIFMwpmEwpeFF
Actual stock of loans is demand determined, and
banks borrow on world capital markets the required
“shortfall” given their domestic sources of funds.
![Page 14: IMMPA: Integrated Macroeconomic Model for Poverty Analysis · 2015. 11. 18. · and long-run •Poverty gap decreases in short, medium and long run-run (for both consumption and income-based](https://reader036.fdocuments.net/reader036/viewer/2022071117/6000f5b984bf4379904465e3/html5/thumbnails/14.jpg)
Welfare:
• Per capita real consumption goes up (CPC-AN, CPC-AT, CPC-I, CPC-S, not CPC-UF)
• Consumption-based Poverty Headcount, short, medium and long-run
• Income-based Poverty Headcount, short and long-run
• Poverty gap decreases in short, medium and long run-run (for both consumption and income-based measures)
• Share (U-AN+U-I)/POP eventually falls (inc. in short run, “rough poverty measure”)
![Page 15: IMMPA: Integrated Macroeconomic Model for Poverty Analysis · 2015. 11. 18. · and long-run •Poverty gap decreases in short, medium and long run-run (for both consumption and income-based](https://reader036.fdocuments.net/reader036/viewer/2022071117/6000f5b984bf4379904465e3/html5/thumbnails/15.jpg)
Debt Relief: Savings allocated to
Infrastructure
• Typical demand effects, but also supply-side effects:
K-I K-G MP of all factors in rural traded, rural non-traded and private formal sectors U-AT, U-P, S-P, Z
• Additional effect on investment via government: Reduction in confiscation risk:
IF * FL_G , TAXREV Z
• Effects on credit market:
Z DL_P PR IL (In short run. In long run, IL because higher K-P)
![Page 16: IMMPA: Integrated Macroeconomic Model for Poverty Analysis · 2015. 11. 18. · and long-run •Poverty gap decreases in short, medium and long run-run (for both consumption and income-based](https://reader036.fdocuments.net/reader036/viewer/2022071117/6000f5b984bf4379904465e3/html5/thumbnails/16.jpg)
11
)(
PR
DL
DLNWPR pr
P
PPcprpr
pr
PPPP FLERDLKPKNW
![Page 17: IMMPA: Integrated Macroeconomic Model for Poverty Analysis · 2015. 11. 18. · and long-run •Poverty gap decreases in short, medium and long run-run (for both consumption and income-based](https://reader036.fdocuments.net/reader036/viewer/2022071117/6000f5b984bf4379904465e3/html5/thumbnails/17.jpg)
Effects on goods market:
• Agric. Traded:
IL, but negative effect of loan rate on effective
wages and output is offset by productivity gains
X-AT (whereas transfer case X-AT fell)
• Agric. Non-Traded:
MPU-AN X-AN
• Private formal:
Z K-P MPS S-P
S-P MPU-P U-P (product wage )
K-I K-G MPU-P, MPS-P,
MP_K-P U-P, S-P, Z
![Page 18: IMMPA: Integrated Macroeconomic Model for Poverty Analysis · 2015. 11. 18. · and long-run •Poverty gap decreases in short, medium and long run-run (for both consumption and income-based](https://reader036.fdocuments.net/reader036/viewer/2022071117/6000f5b984bf4379904465e3/html5/thumbnails/18.jpg)
Final result: X-P (notice much higher values than
transfers case)
• Notice UNEMP (S) much lower than transfer case
• Informal:
U-P U-I X-I (but increases product
wage and consumption wage)
• Exports: both E-A, E-P (previously both
down). Why? See shift in transformation curve
• Imports: M-A, M-P . Why? See shift in
Armington function.
![Page 19: IMMPA: Integrated Macroeconomic Model for Poverty Analysis · 2015. 11. 18. · and long-run •Poverty gap decreases in short, medium and long run-run (for both consumption and income-based](https://reader036.fdocuments.net/reader036/viewer/2022071117/6000f5b984bf4379904465e3/html5/thumbnails/19.jpg)
Migration:
• EwA<EwU MIGR
• This helps explain W-I/P_UU
Skills acquisition:
• EwS<EwU SKL
• UNEMP?
• S-P UNEMP (even with SKL, both short run and long run)
![Page 20: IMMPA: Integrated Macroeconomic Model for Poverty Analysis · 2015. 11. 18. · and long-run •Poverty gap decreases in short, medium and long run-run (for both consumption and income-based](https://reader036.fdocuments.net/reader036/viewer/2022071117/6000f5b984bf4379904465e3/html5/thumbnails/20.jpg)
Financial markets:
• Higher money holdings, including as share of total assets (transactions effect)
• Higher loan interest rates initially, but lower in the long run. Why? Value of collateral increases as K-P increases
• Increase in loans for higher investment financed with higher foreign bank loans (increase in deposits not sufficient, remember DD/W)
• Increase in foreign exchange reserves exceeds that of transfers scenario (higher trade balance but almost the same private banks capital inflows)
![Page 21: IMMPA: Integrated Macroeconomic Model for Poverty Analysis · 2015. 11. 18. · and long-run •Poverty gap decreases in short, medium and long run-run (for both consumption and income-based](https://reader036.fdocuments.net/reader036/viewer/2022071117/6000f5b984bf4379904465e3/html5/thumbnails/21.jpg)
Welfare:
• Notice transfers to households eventually larger
than under transfer scenario. Why? Higher tax
collection due to increased activity.
• Per capita real consumption goes up for some
sectors (CPC-AN, CPC-I, CPC-S, not CPC-UF,
CPC-AT). For growing CPC groups, long-run
effects are bigger than transfers case
• Consumption-based and Income-based Poverty
Headcount, especially in the long run. Long-run
measures outperform transfers case by a factor of 2
![Page 22: IMMPA: Integrated Macroeconomic Model for Poverty Analysis · 2015. 11. 18. · and long-run •Poverty gap decreases in short, medium and long run-run (for both consumption and income-based](https://reader036.fdocuments.net/reader036/viewer/2022071117/6000f5b984bf4379904465e3/html5/thumbnails/22.jpg)
Welfare, continued:
• However, in the short run, transfers outperform
infrastructure investment! Importance of
dynamic model
• Consumption-based poverty gap decreases in short,
medium and long run
• Gini coefficients, though lower than in base, are
higher than transfers case. Makes sense, given not
all sectors are affected equally by infrastructure
increases
![Page 23: IMMPA: Integrated Macroeconomic Model for Poverty Analysis · 2015. 11. 18. · and long-run •Poverty gap decreases in short, medium and long run-run (for both consumption and income-based](https://reader036.fdocuments.net/reader036/viewer/2022071117/6000f5b984bf4379904465e3/html5/thumbnails/23.jpg)
Policy Rankings
Total PovertyHeadcount
Infrastructure Education Transfers
Urban PovertyHeadcount
Education Infrastructure Transfers
Rural PovertyHeadcount
Infrastructure Education Transfers
- Infrastructure is PPF enhancing
- Education increases the supply of skilled labor but
there may be unemployment
- Has direct effects in urban areas
- Policy mix? Better than Education only
Why?
![Page 24: IMMPA: Integrated Macroeconomic Model for Poverty Analysis · 2015. 11. 18. · and long-run •Poverty gap decreases in short, medium and long run-run (for both consumption and income-based](https://reader036.fdocuments.net/reader036/viewer/2022071117/6000f5b984bf4379904465e3/html5/thumbnails/24.jpg)
Concluding Remarks
![Page 25: IMMPA: Integrated Macroeconomic Model for Poverty Analysis · 2015. 11. 18. · and long-run •Poverty gap decreases in short, medium and long run-run (for both consumption and income-based](https://reader036.fdocuments.net/reader036/viewer/2022071117/6000f5b984bf4379904465e3/html5/thumbnails/25.jpg)
A great variety of fiscal policy measures can be analyzed with IMMPA:
l 1. Revenue neutral income/sales tax reform (taxation of profits, labor income).
l 2. Tariff reform (neutral or not); link between trade liberalization and fiscal adjustment.
l 3. Adjustment in public sector wages and employment (lay-offs).
l 4. Changes in payroll taxation on unskilled labor.
l 5. Changes in the level or composition of lump-sum transfers (redistribution to low-income households).
![Page 26: IMMPA: Integrated Macroeconomic Model for Poverty Analysis · 2015. 11. 18. · and long-run •Poverty gap decreases in short, medium and long run-run (for both consumption and income-based](https://reader036.fdocuments.net/reader036/viewer/2022071117/6000f5b984bf4379904465e3/html5/thumbnails/26.jpg)
l 6. Fiscal sustainability rules (e.g. IMMPA-Brazil,
link between interest rate premium on public bonds
and the stock of public debt). Endogenize either
government spending or tax rates.
l 7. Changes in the mix of public investment:
changes in the allocation of investment between
infrastructure, education, and health.
l 8. Changes in the price of public sector services.
l 9. Changes in the degree of congestion of public
services in the urban sector.
![Page 27: IMMPA: Integrated Macroeconomic Model for Poverty Analysis · 2015. 11. 18. · and long-run •Poverty gap decreases in short, medium and long run-run (for both consumption and income-based](https://reader036.fdocuments.net/reader036/viewer/2022071117/6000f5b984bf4379904465e3/html5/thumbnails/27.jpg)
l Issue 7: key question in the context of a poverty
reduction strategy: what is the public “investment
mix” that has the greatest effect on poverty?
l Particularly important for low-income countries that
are benefiting from debt relief, but with the
understanding that the savings must be reallocated
to poverty reducing measures.
![Page 28: IMMPA: Integrated Macroeconomic Model for Poverty Analysis · 2015. 11. 18. · and long-run •Poverty gap decreases in short, medium and long run-run (for both consumption and income-based](https://reader036.fdocuments.net/reader036/viewer/2022071117/6000f5b984bf4379904465e3/html5/thumbnails/28.jpg)
l IMMPA: a flexible tool that can be amended or
extended in various ways.
l Example: adverse effect of external debt
è High public external debt may also lead to private
capital flight.
è Debt reduction may not only stimulate private
investment but also private capital inflows.
è Endogenizing these flows would provide another
source of positive externalities.
![Page 29: IMMPA: Integrated Macroeconomic Model for Poverty Analysis · 2015. 11. 18. · and long-run •Poverty gap decreases in short, medium and long run-run (for both consumption and income-based](https://reader036.fdocuments.net/reader036/viewer/2022071117/6000f5b984bf4379904465e3/html5/thumbnails/29.jpg)
Other types of adjustment policies that can be
analyzed with IMMPA:
l Monetary and financial policies
è Changes in domestic credit to government; study
of crowding-out effects.
è Financial liberalization (increase in bank deposit
rates).
è Private capital outflow.
è Change in world interest rates.
è Changes in reserve requirement rates.
è Nominal exchange rate devaluation.
è Monetary policy rules (inflation targeting).
![Page 30: IMMPA: Integrated Macroeconomic Model for Poverty Analysis · 2015. 11. 18. · and long-run •Poverty gap decreases in short, medium and long run-run (for both consumption and income-based](https://reader036.fdocuments.net/reader036/viewer/2022071117/6000f5b984bf4379904465e3/html5/thumbnails/30.jpg)
l Labor market reforms.
è Changes in minimum wages.
è Switch to flexible wages in the formal sector.
è Incentives for skills acquisition.
è Changes in payroll taxation (both skilled and
unskilled labor).
è Unemployment insurance.
![Page 31: IMMPA: Integrated Macroeconomic Model for Poverty Analysis · 2015. 11. 18. · and long-run •Poverty gap decreases in short, medium and long run-run (for both consumption and income-based](https://reader036.fdocuments.net/reader036/viewer/2022071117/6000f5b984bf4379904465e3/html5/thumbnails/31.jpg)
Country applications
l Country applications under way: Brazil, Cameroon,
Morocco, Senegal, Turkey.
l New countries: Benin, Bolivia, Côte d’Ivoire, Tunisia.
l Updates: IMMPA website, IMMPA Newsletter.
![Page 32: IMMPA: Integrated Macroeconomic Model for Poverty Analysis · 2015. 11. 18. · and long-run •Poverty gap decreases in short, medium and long run-run (for both consumption and income-based](https://reader036.fdocuments.net/reader036/viewer/2022071117/6000f5b984bf4379904465e3/html5/thumbnails/32.jpg)
http://www.worldbank.org/immpa