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Economic Welfare Analysis Of The Legalization Of Drugs: A Cge Microsimulation Model For Colombia

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  • Laura Atuesta
  • Geoffrey J.D. Hewings

Abstract

In this paper, a computable general equilibrium (CGE) microsimulation model is used to analyze the effects of an ex ante legalization of drugs on the Colombian economy. The model consists of 11 productive sectors, 3 different labor force categories with unemployment, and 20 households divided by income and location. Changes in wages and migration are estimated using a labor participation model, and a NIDS estimates the demands of the households. Changes in household economic welfare, measured by changes in income and prices (CV and EV measurements), are very sensitive to the reinvestments that the government makes in the economy. By analyzing six different scenarios with different assumptions about changes in drug prices, investments of the government, and the termination of the armed conflict, the results suggest that economic welfare improves when the government reinvests military expenditures in other productive sectors or when the ‘economy of war’ continues and the legalization does not end the armed conflict.

Suggested Citation

  • Laura Atuesta & Geoffrey J.D. Hewings, 2013. "Economic Welfare Analysis Of The Legalization Of Drugs: A Cge Microsimulation Model For Colombia," Economic Systems Research, Taylor & Francis Journals, vol. 25(2), pages 190-211, March.
    • Handle: RePEc:taf:ecsysr:v:25:y:2013:i:2:p:190-211
    DOI: 10.1080/09535314.2012.728130
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    1. Timilsina,Govinda R. & Dissou,Yazid & Toman, Mike & Heine,Dirk, 2021. "Carbon Tax in an Economy with Informality : A Computable General Equilibrium Analysis for Cote d’Ivoire," Policy Research Working Paper Series 9710, The World Bank.
    2. Tapias, J., 2021. "Temporary employment, informality, poverty and inequality," Documentos de trabajo - Alianza EFI 20047, Alianza EFI.
    3. Attila Varga & Norbert Szabó & Tamás Sebestyén, 2020. "Economic impact modelling of smart specialization policy: Which industries should prioritization target?," Papers in Regional Science, Wiley Blackwell, vol. 99(5), pages 1367-1388, October.
    4. Varga, Attila & Sebestyén, Tamás & Szabó, Norbert, 2021. "Az intelligens szakosodási politika gazdasági hatásainak modellezése [Economic impact assessment of smart specialization policy]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 901-929.

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