CoPS/IMPACT Working Paper Number G-239

Title: Reform of Australian Urban Transport: A CGE-Microsimulation Analysis of the Effects on Income Distribution

Authors: George Verikios and Xiao-guang Zhang


Australian urban transport industries experienced substantial reform during the 1990s leading to significant structural change. Urban transport is typically an important expenditure item for households and structural change in these services may affect households differently depending on their position in the distribution of income and expenditure. We estimate the effects on household income groups of this structural change by applying a computable general equilibrium model incorporating microsimulation behaviour with top-down and bottom-up links. We compare estimates based on a pure microsimulation approach, a top-down approach and a hybrid top-down/bottom-up approach. We estimate small reductions in real income and small reductions in inequality; this pattern is largely replicated across regions. Our results are insensitive to the inclusion of bottom-up links; in contrast, applying a pure microsimulation approach gives accurate results at the aggregate level but underestimates the variation in effects across deciles and regions.

JEL classification: C68, C69, D31, L92.

Keywords: computable general equilibrium, income distribution, microeconomic reform, microsimulation, urban transport.

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