Structural change and income distribution: the case of Australian telecommunications

ABSTRACT

The Australian telecommunications sector experienced substantial structural change during the 1990s, a change that increased productivity and reduced costs. At this time, telecommunications was already an important item of household expenditure and input to production. We estimate the effect of the structural change on households depending on their location in the distribution of income and expenditure. Our estimates are calculated by applying a computable general equilibrium model incorporating microsimulation behaviour with top-down and bottom-up links. We estimate significant increases in real income and small increases in inequality from the changes; the pattern of effects is largely uniform across regions. Sensitivity analysis indicates that our results are insensitive to variations in model parameters.

KEYWORDS:

• Computable general equilibrium
• income distribution
• microeconomic reform
• microsimulation
• telecommunications

JEL CODES:

• C68
• C69
• D31
• L99

Acknowledgments

The views expressed here are of the authors and do not necessarily reflect those of KPMG or the Productivity Commission. We thank Ken Clements, Ken Pearson and an anonymous reviewer for helpful comments on the paper.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. Section 2.1 draws on PC (2002).

2. The CGE model presented in the next section only contains an aggregate communications sector that comprises postal and telecommunications services. The changes in telecommunications unit-output employment are weighted by the share of telecommunications employment in communications employment when applied to the model to ensure that we do not overestimate the effects on the wider economy of changes in telecommunications unit-output employment.

3. As with our estimates of unit-output employment, the estimates of the relative price of telecommunications are weighted by the share of telecommunications output in communications output when applied to the CGE model.

4. The model is implemented and solved using the multistep algorithms available in the GEMPACK economic modelling software (Harrison and Pearson 1996).

5. See, for example, Adams et al. (2000), Dixon and Rimmer (2002), Dixon, Rimmer, and Wittwer (2011), Dwyer et al. (2003), Horridge, Madden, and Wittwer (2005), Wittwer et al. (2005), and Ye (2008).

6. That is, minus the ratio of total expenditure to luxury expenditure.

7. An alternative would be to assume that ϵ_icr is constant across households (e.g., Bourguignon and Savard 2008).

Additional information

Notes on contributors

George Verikios

George Verikios is an Associate Director at KPMG Australia. His primary research interest is in the construction and application of economic models to analysing issues of public interest; this includes pandemic influenza, trade liberalisation, tax policy, and microeconomic reform. He has published over 20 articles in peer-reviewed journals such as Agricultural Economics, Economic Modelling, The World Economy and Economic Record. Email: [email protected]

Xiao-guang Zhang

Xiao-guang Zhang is a Research Manager at the Productivity Commission, Australia. His recent research interests include general equilibrium analysis of tax and transfer policy changes and their impacts on individual households and the economy as a whole. He has published articles in The World Economy, Contemporary Economic Policy, and The Australian Journal of Agricultural and Resource Economics. Email: [email protected]