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The Multisector Applied Computable General Equilibrium Model for Italian Economy (MACGEM-IT)

  • Research Paper - Italy and Europe
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Abstract

The continuous evolution of the institutional and regulatory framework requires the development of analysis instruments able to support the policy maker in designing and evaluating the impact of specific policy measures for the achievement of selected targets. With this intent, the MACGEM-IT model is developed to measure the aggregate and disaggregated, direct and indirect impacts of economic policy proposals within the economic system. Specifically built to reflect the characteristics of Italian economy, MACGEM-IT is a multi-input, multi-output and multi-sector static CGE model calibrated on the Social Accounting Matrix for Italy. It incorporates rigidities on prices, market imperfections and specific constraints on the behaviour of selected institutional sectors. The capability of the model to track the transmission mechanisms of policy measures and identify their direct, indirect and induced effects in the economy, is tested through a set of fiscal policy simulations.

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Notes

  1. The demand and the supply of commodities meet in a perfect competitive market to originate the equilibrium prices that correspond to the average cost of production of each commodity (Walras 1874).

  2. The classification of commodities and industries is displayed in the Online Appendix A, Tables A1 and A2.

  3. The classification of taxes on industries is displayed in Online Appendix A, Table A3.

  4. The classification of taxes on commodities is displayed in Online Appendix A, Table A3.

  5. The Rest of the World lumps together the transactions with EU and non-EU countries. The separation of these flows can be very interesting since Italy is part of the EU single market. However, the reason for grouping them together is twofold. From one side it is very complex and time demanding to obtain data for the disaggregation of the economic flows related to the secondary income distribution between the EU and non-EU countries. From the other side, the aim of the article is to build a set of tools (namely the SAM and the MACGEM-IT model) to evaluate the distributional effects of economic policies within the Italian economy.

  6. Table A4 in Online Appendix A shows the classification of taxes on income.

  7. See Online Appendix A for a detailed description of the equations and table A6 for the elasticities parameters.

  8. Domestic commodities and imports are imperfect substitutable since they have some elements of differentiation that can be observed by final consumers (Armington 1969).

  9. The current version of MACGEM-IT only determines the amount of commodities used for capital formation, but does not provide any information on the industry that uses the commodity in production processes as fixed asset (or inventory), nor the Institutional Sectors that purchase it.

  10. The total supply of labour is derived from the combination of SAM data and data on employment from ISTAT (2015b). We assume that the total compensation of employees within the Value Added (subsequently allocated among the Institutional Sectors) correspond to the total demand of labour given a unitary nominal wage. Then, we calibrate the total supply of labour compatible with the demand of labour (from SAM) and the unemployment rate from official statistics (ISTAT 2015c). This allows replicating the actual condition of the labour market in Italy.

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Authors and Affiliations

  1. Dipartimento di Economia e Diritto, Università di Macerata, Via Crescimbeni 14, 62100, Macerata, Italy

    Claudio Socci & Francesca Severini

  2. Ministero dell’Economia e delle Finanze, Rome, Italy

    Francesco Felici

  3. Dipartimento di Scienze Politiche, della Comunicazione e delle Relazioni Internazionali, Università di Macerata, Macerata, Italy

    Rosita Pretaroli

  4. Senato della Repubblica, Rome, Italy

    Renato Loiero

Authors
  1. Claudio Socci
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  2. Francesco Felici
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  3. Rosita Pretaroli
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  4. Francesca Severini
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  5. Renato Loiero
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Correspondence to Claudio Socci.

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Socci, C., Felici, F., Pretaroli, R. et al. The Multisector Applied Computable General Equilibrium Model for Italian Economy (MACGEM-IT). Ital Econ J 7, 109–127 (2021). https://doi.org/10.1007/s40797-020-00127-y

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  • DOI: https://doi.org/10.1007/s40797-020-00127-y

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