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Modeling Macroeconomic Dynamic CGE for the Indonesian Economy

Author

Listed:
  • Muliadi Widjaja

    (Researcher, the Institute for Economic and Social Research, Faculty of Economics University of Indonesia (LPEM-FEUI).)

  • Eugenia Mardanugraha

    (Researcher, the Institute for Economic and Social Research, Faculty of Economics University of Indonesia (LPEM-FEUI).)

Abstract

Since the seminal work of Auerbach and Kotlikoff (1987), economists who work on taxes and pensions are able to apply the macroeconomic dynamic computable general equilibrium (CGE) as the main tool to predict the long run effect of taxation. The model is also known as the Overlapping Generation (OLG) CGE model. The applicability and the beauty of the overlapping generation model lies in the microeconomic foundation of the model. Even though it is a dynamic macroeconomic model, it contains the behavioral models of economic agents: households, firms, and government. Exports and imports are included in the model to catch the feature of a small open economy country.The main purpose of this model is to construct a model to predict the impact of an integrated pension program for Indonesia on the Indonesian economy. The pension reform offered in this paper is a tax and transfer type. The source of funds is a consumption tax with a cash transfer program for eligible poor pensioners in the short run.

Suggested Citation

  • Muliadi Widjaja & Eugenia Mardanugraha, 2008. "Modeling Macroeconomic Dynamic CGE for the Indonesian Economy," Economics and Finance in Indonesia, Faculty of Economics and Business, University of Indonesia, vol. 56, pages 243-260, December.
    • Handle: RePEc:lpe:efijnl:200812
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    More about this item

    Keywords

    Macroeconomics; Pension; Household; Indonesia;
    All these keywords.

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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