Policy Reports

Abstract:

The main goal of regional computable general equilibrium models is to analyze how different regions within a specific area react to certain shocks. Therefore, countries with high heterogeneity among regions, like Italy, constitute an interesting case study for regional computable general equilibrium model analysis. This paper presents the regional part of the new (recursive) dynamic single-country computable general equilibrium model called the Italian Regional and Environmental Computable General Equilibrium of the Department of Finance, based on the Mitigation, Adaptation and New Technologies Applied General Equilibrium model of the World Bank. A new regional social accounting matrix for Italy (20 regions at the Nomenclature of territorial units for statistics level) has been constructed. The social accounting matrix is used as input data to simulate the abolition of the regional tax on productive activities (regional business tax) through three different scenarios, focusing on the effects on gross domestic product, regional value added, and welfare. The results show that under the modeling assumptions, the complete abolition of the regional tax on productive activities would positively impact Italian economic growth and regional welfare.

Abstract:

The main purpose of this paper is to present an innovative approach to estimate the Italian inter-regional trade flows in terms of final and intermediate consumption. It contributes to the literature in several ways. The first innovative feature concerns the data used in the analysis. We reconstruct the flow of households’ final consumption by using administrative data from the Italian VAT returns. The result is then used for estimating a traditional gravity model for final consumption trade; the estimated coefficients are furtherly exploited to compute the flows of intermediate consumption. The second contribution relates to the modeling approach: we combine the literature on gravity models with a spatial autoregressive specification, to take into account spatial dependence in the bilateral flows, and a geographically weighted regression estimator, to control for behavioral instability of data over space. In addition to that, our model controls for commodity dependence by including them as a fixed effect in a pseudo-panel view, where the time dimension captures the commodities dynamics. Therefore, the strategy here introduced is useful to consider both local level economic relations and spillovers, existing between regions, and the link among different types of products.