IDEAS home Printed from https://ideas.repec.org/p/del/abcdef/2003-05.html
   My bibliography  Save this paper

Representative versus real households in the macro-economic modeling of inequality

Author

Listed:
  • François Bourguignon
  • Anne-Sophie Robilliard
  • Sherman Robinson

Abstract

To analyze issues of income distribution, most disaggregated macroeconomic models of the Computable General Equilibrium (CGE) type specify a few representative household groups (RHG) differentiated by their endowments of factors of production. To capture "within-group" inequality, it is often assumed, in addition, that each RHG represents an aggregation of households in which the distribution of relative income within each group follows an exogenously fixed statistical law. Analysis of changes in economic inequality in these models focuses on changes in inequality between RHGs. Empirically, however, analysis of household surveys indicates that changes in overall inequality are usually due at least as much to changes in within-group inequality as to changes in the between-group component. One way to overcome this weakness in the RHG specification is to use real households, as they are observed in standard household surveys, in CGE models designed to analyze distributional issues. In this integrated approach, the full heterogeneity of households, reflecting differences in factor endowments, labor supply, and consumption behavior, can be taken into account. With such a model, one could explore how household heterogeneity combines with market equilibrium mechanisms to produce more or less inequality in economic welfare as a consequence of shocks or policy changes. An integrated microsimulation-CGE model must be quite large and raises many issues of model specification and data reconciliation. This paper presents an alternative, top-down method for integrating micro-economic data on real households into modeling. It relies on a set of assumptions that yield a degree of separability between the macro, or CGE, part of the model and the micro-econometric modeling of income generation at the household level. This method is used to analyze the impact of a change in the foreign trade balance, and the resulting change in the equilibrium real exchange rate, in Indonesia (before the Asian financial crisis). A comparison with the standard RHG approach is provided.

Suggested Citation

  • François Bourguignon & Anne-Sophie Robilliard & Sherman Robinson, 2003. "Representative versus real households in the macro-economic modeling of inequality," DELTA Working Papers 2003-05, DELTA (Ecole normale supérieure).
  • Handle: RePEc:del:abcdef:2003-05
    as

    Download full text from publisher

    File URL: http://www.delta.ens.fr/abstracts/wp200305.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • F31 - International Economics - - International Finance - - - Foreign Exchange

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:del:abcdef:2003-05. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/deltafr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.