Computable General Equilibrium (CGE) models are among the most influential tools in
applied economics. In the past few years, however, some serious questions have been raised
about the validity of these models. The core of the critique is that the parameter selection criteria
and the functional forms used are at odds with contemporary standards of practice in econometrics.
After surveying the relevant literature, which I refer to as the 'econometric critique', a formal
summary of the case against standard CGE modeling is presented, as is an alternative econometric-based
modeling strategy which answers the critique. I then work through a comparative CGE
modeling experiment designed to assess the contrasting methods. It is found that the parameter
selection rule influences model predictions in individual sectors, but industry- and economy-wide
aggregates do not appear to be much affected by reparameterizing a CGE model according to
econometric criteria. By contrast, the choice of functional forms affects not only industry-specific
results, but aggregate results as well, even for small policy shocks. However flexible functional
forms are difficult to implement in CGE models because global monotonicity must be maintained.
In the second and third chapters, I adapt one of the models to analyze the effects of carbon
taxes in Canada. I review an approach called 'double dividend' taxation, in which the revenues
from carbon taxes are used to reduce the rates of other distortionary taxes, so an overall efficiency
gain can potentially be realized whether or not the reduction in pollution improves welfare. This
eliminates the need to measure benefits, and in an international context, would obviate the free-rider
problem. I demonstrate the existence of a double dividend strategy for carbon taxation in
Canada in the short run. In chapter three, however, a long run extension of the model shows that
the double dividend does not persist over time. Nevertheless, choosing an efficient revenue-recycling
option can significantly reduce the implementation cost of the carbon tax.
| Identifer | oai:union.ndltd.org:LACETR/oai:collectionscanada.gc.ca:BVAU.2429/6113 |
| Date | 11 1900 |
| Creators | McKitrick, Ross Ronald |
| Source Sets | Library and Archives Canada ETDs Repository / Centre d'archives des thèses électroniques de Bibliothèque et Archives Canada |
| Language | English |
| Detected Language | English |
| Type | Electronic Thesis or Dissertation |
| Relation | UBC Retrospective Theses Digitization Project [http://www.library.ubc.ca/archives/retro_theses/] |
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