The Impact of Economic Partnership Agreement (EPA) and Counter Fiscal Policy Measures for Ethiopia: A Recursive Dynamic Computable General Equilibrium Model
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Date
2012-06
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A.A.U
Abstract
As a Growth and Transformation Plan (GTP), the Ethiopian government has planned
to conclude the Economic Partnership Agreement (EPA) with European Union (EU)
and joining common Market for Eastern and Southern Africa- Free Trade Area
(COMESA-FTA). Thus, in the study we have shown endeavor to examine the
economy-wide effects of concluding those agreements. To attain the stated objectives,
a recursive dynamic computable general equilibrium (CGE) model is used as an
important analytical tool. As a main data base the model is calibrated with an
updated version of 2005106 Social Accounting Matrix (SAM). There were three
individual and two combined simulations.
According to the simulation results, following tariff reduction, with exception of
investment and government income, almost all of the macroeconomic indicators,
sectoral output and welfare indicators have shown improvement. Similarly, in the
combined simulation, tariff reduction and direct tax rate adjustment, though the
percentage of improvement is lower for some variables all of the variables have
recorded a positive change. Unlike the above simulations, the simulation combining
tariff reduction together with sales tax rate adjustment has shown a negative change
in some of macroeconomic indicators, sectoral output and welfare indicators. In
concluding, in those simulations which included sales tax rate adjustment has brought
adverse effect on most of the economic variables. Therefore, from the welfare point of
view, the implication of our study is that, comparing the two compensating measures,
it is beneficial to apply direct tax rate adjustment together with tariff reduction
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Keywords
Equilibrium Model, Fiscal Policy