Macroeconomic models Sample Clauses

Macroeconomic models. (general equilibrium) Based on the input-output framework, multi-sectoral Computable General Equilibrium (CGE) models are powerful modeling tools to consistently assess the impacts of climate policies in different households. These models link the macroeconomic impacts from changes in prices, assets and productivity and capture all sources of income, consumption preferences and skill endowments of households. However, analysing the implications of climate policies for poverty and income distribution requires that such models explicitly represent different household groups and their heterogeneity in terms of: • factor endowments, such as differences in financial assets or labour and skills supply across households; • preferences and savings, commonly achieved by differentiating parameters in households’ utility functions (e.g., preference shares, substitution elasticities) to simulate different decisions of household types on saving vs. consuming; • wage rates and different return rates to capital for different households (e.g., imperfect capital markets like credit rationing according to income), but also household decisions on participation in the labour market depending on their specific characteristics. An overview of the mathematical formulation of CGE models is given in the supporting information in Equations S2, S3 and S4.

Macroeconomic models. This section reviews methods to depict distributional impacts in macroeconomic models based on the general equilibrium theory. We start by giving an overview of macroeconomic modeling applied to evaluate the distributional effects of energy transition and summarize commonly used techniques to portray these effects in the general equilibrium framework. The description of each technique is followed by a critical assessment of its data requirements, strengths and weaknesses. Despite not being the focus of this work, but given their importance, the last part of this section briefly comments on the application of IOMs for the analysis of distributional impacts. The main advantage of using macroeconomic models, compared to energy system models portrayed in the last section, is that general equilibrium models can represent the entire economy. This feature allows for feedback effects between the energy system and other sectors of the economy. Introducing household heterogeneity into CGE models for the analysis of distributional effects dates back to the 1970s when Xxxxxxx and Xxxxxxxx analyzed income distribution policies in South Korea as a case study.[44,45] The addition of this feature better reflects the fact that households have distinct utility functions, labour types (skilled/unskilled), capital endowments and consumption patterns and allows for the analysis of socio-economic effects such as poverty, income distribution, the incidence of taxes and social equity. In recent years, macroeconomic models are being utilized to depict distributional effects due to their flexible formulation, which allows for an efficient implementation of household heterogeneity. This feature was applied in global models[46–48] by characterizing a representative household on the basis of underlying changes in age, household size, or urban-rural status, to analyse the effects of demographic change on economic growth, energy use and emissions. The inclusion of multiple household groups in global models can be performed by extending the number of household types for several countries or by performing a sequential microsimulation.[49,50] Most of the methods to integrate income distribution in general equilibrium models have been developed in the context of development economics.[51–53] However, this strand of literature mostly uses static CGE models and analyses short-term poverty impacts of development-related policy shocks and does not account for several factors that are relevant f...