Development of a Large-scale Single US Region CGE Model using IMPLAN Data: A Los Angeles County Example with a Productivity Shock Application

Abstract

This paper details the construction of a large-scale computable general equilibrium (CGE) model for a single US region. The model contains a detailed treatment of margins and taxes, features not typically given prominence in US regional CGE models. The starting point for the core of the CGE model's data base is information from IMPLAN, producers of regional I/O data at the US county and state levels. IMPLAN's I/O tables, however, are in producer prices with aggregated treatment of margins and taxes. The methods for reconfiguring the I/O data into basic price flows with direct allocation of imports and a disaggregated treatment of taxes and margins are described. The method is applied to construction of a Los Angeles County model. An illustrative simulation of a productivity improvement in the Los Angeles County economy is then discussed.

Développement d'un modèle GCE (modèle d’équilibre général) à grande échelle pour une région unique des États-Unis, à l'aide de données IMPLAN: un exemple dans le comté de Los Angeles avec une application à choc de productivité

Résumé La présente communication illustre en détail la construction d'un modèle informatisé d’équilibre général (GCE) pour une région unique des États-Unis. Ce modèle contient un traitement détaillé de marges et taxes, des aspects auxquels on n'accorde généralement pas une importance prédominante dans les modèles GCE régionaux aux États-Unis. Le point de départ pour la partie essentielle de la base de données du modèle CGE se situe au niveau des informations provenant d'IMPLAN, des producteurs de données d'Entrée/Sortie régionaux à l’échelon du comté et de l’état, aux États-Unis. Toutefois, les tableaux d'entrée/sortie d'IMPLAN portent sur des prix de producteur avec traitement agrégé des marges et des taxes. Les méthodes de reconfiguration des données d'E/S dans des flux de prix de base, avec affectation directe des importations, et un traitement désagrégé de taxes et marges, sont décrits. La méthode est appliquée à la construction d'un modèle du comté de Los Angeles. Une simulation illustrative d'un renforcement de la productivité est ensuite discutée.

Desarrollo de un modelo CGE a gran escala para una región estadounidense única utilizando datos IMPLAN: un ejemplo de Los Angeles County con una aplicación de choques de productividad

Extracto Este trabajo detalla la construcción de un equilibro general computable (CGE) a gran escala para una sola región estadounidense. El modelo contiene un tratamiento detallado de márgenes e impuestos, características que típicamente no reciben prominencia en los modelos CGE regionales estadounidenses. El punto inicial para el núcleo de la base de datos del modelo CGE es información procedente de IMPLAN, productores de datos I/O (input–output) regionales a los niveles de condado y estado estadounidenses. No obstante, las tablas I/O de IMPLAN aparecen en precios de productores con tratamiento agregado de márgenes e impuestos. Se describen los métodos para reconfigurar los datos I/O en flujos de precios básicos con asignación directa de importaciones y un tratamiento desagregado de impuestos y márgenes. El método se aplica a la construcción de un modelo de Los Angeles County. Seguidamente, se discute una simulación ilustrativa de la mejora de productividad en la economía de Los Angeles County.

Keywords:

• Regional CGE
• IMPLAN

JEL CLASSIFICATION::

• C68
• R13
• R15

Acknowledgements

This research was undertaken while visiting the Center for Risk and Economic Analysis of Terrorism Events (CREATE), University of Southern California. I would like to thank CREATE and Professor Adam Rose (Coordinator for Economics, CREATE) for their support of the project.

Notes

1. USAGE is a detailed, dynamic CGE model of the USA. It has been developed at the Centre of Policy Studies, Monash University, in collaboration with the US International Trade Commission. Prominent applications of USAGE by the US International Trade Commission include USITC (2004, 2007).

2. It also facilitates short-run exogenous shocks to regional labour supply, something not possible under an assumption of exogeneity of the real regional wage. Impetus to development of ORANI-R was a desire to investigate the economic consequences of disaster and terrorism events at the Center for Risk and Economic Analysis of Terrorism Events, University of Southern California. Some such events involve mass casualties. Labour supply shocks arising from such casualties are impossible under the standard regional labour market closure of effective exogeneity in the regional wage.

3. Use of CRESH to model commodity-sourcing in a multi-regional framework was first made by Madden (1996).

4. See Dixon et al. (1992, p. 128) for derivation of the percentage change form of cost-minimizing CRESH input demands.

5. In the application reported in Section 4, this elasticity is set at 3.

6. USAGE is a national model and as such recognizes two sources, domestic and foreign. In building the regional database, we assume the foreign import shares are the same as the USAGE foreign import shares. We split the USAGE domestic import share into local and rest-of-US components using commodity-specific local/rest-of-US ratios from Figure 3.

7. For TF_{c,local,foreign exports} we use USAGE tax rates on foreign exports. For T4_{c,local,RUS exports} we use a sales-weighted average of USAGE indirect tax rates on domestic commodity sales. USAGE identifies a single government, representing an aggregate of local, state and federal levels. We use USAGE tax rates on purchases by aggregate government to set identical tax rates on source specific purchases by both state and federal governments, that is, TF_{c,s,stategovernment}=TF_{c,s,federal government}.

8. At present, α _POP is set at 5. In the future, we hope to set this parameter at values that reflect (i) the length of run; and (ii) econometric evidence on the elasticity of regional population to movements in regional wage differentials.