Income Distribution and Poverty in a CGE Framework:A Proposed Methodology

Abstract

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The paper discusses methodologies addressing income distribution and poverty in a Computable General Equilibrium (CGE) model framework, by describing how to link CGE results with household survey data to analyze income distribution and poverty implications. The most basic approach is simply to fit the household income/expenditure to the survey data by suitable parametric distribution functions. The post-simulation poverty indices can be estimated by either assuming that the income of each individual household within the group moves proportionally with the group's mean income, or by our proposed elasticity method. In our proposed method, we use the elasticity estimated from existing surveys to calculate the change in expenditure of each subgroup category in response to change in the household category's mean consumption, supplied by the core model's simulation, to derive post-simulation poverty indices. Our approach may better capture intra-group income distribution of households and moderate gains or losses in welfare from economic growths.

ERIA-DP-2009-18.pdf