The international migration literature has highlighted four key stylized facts from the perspective of the source country: (i) Migration rates are notably high, with some nations seeing over ten percent of their population living abroad. (ii) Certain developing countries have witnessed a significant exodus of skilled workers, commonly referred to as brain drain, spanning several decades. (iii) Migrants often maintain strong ties to their country of origin, evidenced by the substantial remittances they send back to their relatives. (iv) Migration is not necessarily permanent, as a considerable number of individuals return to their home country after a period spent abroad. In this paper, we present a theoretical model that endogenously explains these facts. Our model allows us to explore key issues in migration literature from a theoretical standpoint. We analyze the general equilibrium effects of migration, its long-term implications, and its welfare consequences. Additionally, we investigate whether the combined impact of return migration and remittances can counterbalance the effects of skilled migration. Finally, we evaluate the efficacy of policy interventions designed to mitigate the adverse effects of brain drain.

This paper develops a general equilibrium life-cycle model with endogenous retirement that focuses on the interplay between old-age pensions (OAP) and disability pensions (DP) in Germany. Germany has introduced a phased-in increase of the normal retirement age from age 65 to 67 (Reform 2007) and closed off other routes to early OAP retirement. This reform was followed by a phased-in expansion of future DP benefits (Reform 2018). Our simulation results indicate that the first reform will induce a shift toward DP retirement, while the Reform 2018 will even neutralize the financial and economic gains of the Reform 2007 if current DP eligibility and benefit rules remain unchanged. We therefore highlight the increased relevance of DP when reforming the retirement system and retirement incentives in an aging society. Securing the financial stability of public pensions requires activation and rehabilitation of sick elderly in the workforce and tight access to disability benefits.

This paper examines the potential effects of agricultural investment on economic outcomes in Guinea-Bissau (2014–2030). Through a dynamic computable general equilibrium (CGE) model, we found that improved agricultural performance will positively impact economic growth, sector output, and job opportunities for rural and urban workers. The decline in food prices will propagate indirect impacts on urban household welfare, while rural households will benefit from direct and indirect effects through the decline in the consumer price index. Poverty alleviation suggests agriculture’s crucial role in supporting ongoing industrialization and food security in Africa with attenuated income inequality.

In 2017 the Scottish Government passed the Child Poverty (Scotland) Act with the commitment to significantly reduce the relative child poverty rate from the current prevailing level of around 25% to 10% by 2030/31. In response, the government introduced the Scottish Child Payment (SCP) that provides a direct transfer to households at a fixed rate per eligible child – currently £25 per week. In this paper we explore, using a micro to macro modelling approach, the effectiveness of using the SCP to achieve the Scottish child poverty targets. While we find that the ambitious child poverty targets can technically be met solely using the SCP, the necessary payment of £165 per week amounting to a total government cost of £3 billion per year, makes the political and economy-wide barriers significant. A key issue with only using the SCP is the non-linearity in the response to the payment; as the payment increases, the marginal gain in the reduction of child poverty decreases – this is particularly evident after payments of £80 per week. A ‘policy-mix’ option combining the SCP, targeted cash transfers and other policy levels (such as childcare provision) seems the most promising approach to reaching the child poverty targets.

This paper evaluates alternative reforms of the public pension system in an overlapping generations model for an open economy facing demographic change. We make progress compared to existing literature on pension reform by modelling individuals with heterogeneous innate ability and endogenous human capital, and by putting (the reduction of) welfare inequality effects of reform at the centre. Frequently adopted reforms such as an increase of the normal retirement age or a decrease of the pension benefit can guarantee financial sustainability, but they fail when the objective is also to avoid intergenerational or intragenerational welfare inequality. Our results prefer a reform which combines an increase of the retirement age with an intelligent linkage between the pension benefit and earlier labour earnings. First, this design conditions pension benefits on past individual labour income, with a high weight on labour income earned when older and a low weight on labour income earned when young. Second, this linkage is complemented by a strong rise in the benefit replacement rate for low ability individuals (and a reduction for high ability individuals).

Trade issues lie at the heart of the two biggest constitutional challenges the UK has faced in decades: Brexit and Scottish independence. Brexit has demonstrated the economic importance of borders and led to renewed calls for Scottish independence. While there are a range of possible trading arrangements an independent Scotland could pursue, all of them involve economically significant change. In this paper, we describe Scottish trade patterns and review the range of options that a newly independent Scotland might have for its trading arrangements. We then model the relative economic importance of these different potential trading arrangements.

The gap in the life expectancy of the elderly across educational groups is high, and this will probably increase over the coming decades. In this article, we use a computable overlapping generations model economy to show that the long-term link between heterogeneity in longevity and education could translate into an implicit tax/subsidy on the expected lifetime benefits to lifetime payroll taxes ratio, with rates around 10%, and that such rates pervert redistributive objectives of pension systems. We then analyze some parametric changes aimed at restoring the progressiveness of these systems in the long run, and find that a higher minimum pension or changes in the pension benefit formula go a long way as tools to restore the system's long-term progressivity.

This paper offers a quantitative assessment of the impacts of the COVID-19 pandemic-induced lockdown and government fiscal plan, containing ‘green’ elements on the economy and the environment of South Africa. The analysis uses a dynamic computable general equilibrium model operationalised using a social accounting matrix coupled with a greenhouse gas balance and emissions data. We find that while the economy is harshly impacted by the pandemic in the short term, the government fiscal package ameliorates and cushions the negative effects on poor households. Importantly, an adaptation of the fiscal package towards a ‘greener’ policy achieves the same economic outcome and reduces unemployment. Carbon dioxide emissions decrease in the short run due to economic slowdown. This improvement persists until 2030. These results can be used as decision support for policy makers on how to orient the post COVID-19 policies to be pro-poor and pro-environment, and thus, ‘build back better and fairer’.

This article fills a gap in the literature by quantifying impacts of fossil fuel subsidy reform on trade (inflow and outflow) in an oil-producing, “almost small”, economy, using Kuwait as an example. It employs a two-region economy-wide model with oligopoly behaviour in a general equilibrium framework. The model embodies unique elements of Kuwait's economic structure, idiosyncratic rigidities, and distortions, including oligopolistic industrial structure and labour markets. Simulations show that energy subsidies have minimal effects on trade and on non-energy exports, largely due to the pervasiveness of oligopolies that sustain large markups and their collusive pricing. Reforming energy subsidies generates higher pro-trade effects if implemented during low (not high) oil prices because its negative effects are partially offset by efficiency gains and reduction in oligopoly markups. Yet, contrary to claims by proponents of reforms, these effects remain largely constrained unless appropriate incentives are introduced. These results have important policy implications. In developing oil-exporting economies with pervasive oligopolies, microeconomic reform can be a channel through which to achieve pro-trade effects of energy subsidy reform. Further, benefits beyond export expansion, such as higher economic efficiency, could be better motivators of energy subsidy reform in oil economies.

Oil prices fell from around $US110 per barrel in 2014 to less than $US50per barrel at the start of 2017. This put enormous pressure on government budgets within the Gulf Cooperation Council (GCC) region. The focus of GCC economic policies quickly shifted to fiscal reform, including the removal of domestic subsidies on energy products. In this paper, we use a dynamic Computable General Equilibrium (CGE) model to investigate the economic impact of the gradual removal of subsidies on refined petroleum and electricity, with specific reference to the Kingdom of Saudi Arabia (KSA).

Our study shows that removing subsidies eliminates a large distortion in the economy. This improves the efficiency of resource use, so that even though employment and capital in most years fall relative to baseline levels, real GDP rises. In addition, we show that fully-funded compensation payments offset the increases in energy prices, leaving economic welfare of the Saudi-national population little affected. Removing the energy subsidies leads to an improvement in the net volume of trade, while leading to a mixed outcome for industries.

We construct and parameterize an overlapping generations model for an open economy with individuals who differ in innate ability. Key endogenous variables are hours worked, investment in human and physical capital, and per capita growth. The model replicates important data in Belgium since 1960 remarkably well. Simulating it, we observe that behavioral adjustments by households and firms contribute to reverse the negative arithmetical effect of future demographic change on per capita growth. Individuals work and study more. However, with unchanged policies, there remains a net negative effect on annual per capita growth of almost 0.3%-points on average in the next 25 years. This is mainly due to adverse consequences of reduced fertility and a declining working-age population on (the return to) physical capital investment. Model projections also point to rising income inequality induced by demographic change. Differences in the capacity of individuals to respond to increasing life expectancy by investing in education, and by saving, are key.

Explaining cross-country differences in current accounts is difficult. While pay-as-you-go pensions reduce the need to save for retirement, contributions to capital-funded pensions are saved for future consumption. An overlapping-generations analysis shows that capital-funded pensions increase net foreign assets holdings. With a multi-pillar system whose capital-funded part accounts for 18% of pensions, the Austrian current account balance would be 1 percentage point of gross domestic product (GDP) higher than with pure pay-as-you-go pensions in 20 years. By comparison, the Austrian current account surplus averages 1.8% of GDP. Empirically, I find that the current account of high-income countries increases with the coverage and replacement rates of capital-funded pensions.

Various methods have been applied to evaluating the economic viability of public investments in tourism. In this article, we capitalize on the strengths of computable general equilibrium and cost-benefit analytical techniques and develop an integrated approach to evaluating public investments in tourism. We apply the approach to the evaluation of a US$6.25 million investment in tourism in Uruguay from the perspective of a multilateral development bank and a beneficiary government. These perspectives differ in a cost-benefit analysis (CBA) due to the timing of the costs incurred. The integrated approach is powerful in that it captures first and subsequent rounds of investment impacts of benefits and costs; resource diversion and constraints are accounted for, and the estimation of benefits is consistent with the welfare economics underpinnings of CBA.

We study the fiscal and welfare consequences of three options for increasing pension generosity in Spain: (i) disability and minimum pensions are fully indexed with the Consumer Price Index (CPI); (ii) minimum and lower value pensions are fully indexed with the CPI; and (iii) returning to full price indexation of all Spanish pensions. While these reforms increase pension adequacy, the tax increases needed to finance the higher pension expenditure differ significantly. Moreover, most current cohorts prefer returning to the full price indexation of all Spanish pensions, but future cohorts prefer that only disability and minimum pensions be indexed with the CPI.

The historical evolution of the EU–US unemployment-rate gap is often explained in the literature in terms of asymmetric changes in labor-market institutions. There may well also be asymmetries in population aging, which may generate international capital flows and have substantial impacts on relative unemployment rates. In this paper, we ask whether the combination of institutions, aging, and capital flows explains the rise in the unemployment gap between 1960 and 2010. To this end, we set up a two-region OLG model with search unemployment in which we introduce the historical and projected changes in labor-market institutions and demographics. We show that asymmetric institutional changes alone can reproduce a large part of the historical rise in the unemployment gap. However, this result no longer holds once we add asymmetric aging in closed economies. We find this initial result again, and in an even stronger form, when we allow for international capital mobility.

We use an overlapping generations model economy with endogenous retirement to study the 2011 and 2013 reforms of the Spanish public pension system. These reforms delay the legal retirement ages, increase the contributivity of the system, and adopt a sustainability factor and a pension revualuation index that effectively transform the Spanish pension system into a defined-contribution pension system. We find that these reforms improve the sustainability of Spanish pensions substantially, and that they limit the tax increases that would have been necessary to finance the pension system deficits. But these results are achieved at the expense of large reductions in the real value of the average pension. This reduction is progressive and, by 2050, the average pension is approximately 30% smaller in real terms than what it would have been under the pension system rules that prevailed in 2010. We also show that these reforms are costly in welfare terms and that households born between 1950 and 1970, young disabled workers who are alive at the time of the reform, and future cohorts bear the highest welfare costs. The substantial reduction of pensions and the high welfare costs that these reforms bring about lead us to conjecture that further reforms lurk in the future of Spanish pensions.

We study the short-, medium-, and long-run implications of stimulating annuity markets in a dynamic general-equilibrium overlapping-generations model. We find that beneficial partial-equilibrium effects of stimulating annuity markets are counteracted by negative general-equilibrium repercussions. Balancing the positive partial-equilibrium and negative general-equilibrium forces we show that there exists an intermediate level of annuitization such that the lifetime utility of steady-state agents is maximized. Studying the transition to this optimal degree of annuitization shows that currently middle-aged individuals stand to gain most from the stimulation of annuity markets. Complementing our main analysis, we highlight the centrality of the interplay between human-capital accumulation and annuity market policy.

Projected demographic changes in industrialized and developing countries vary in extent and timing but will reduce the share of the population in working age everywhere. Conventional wisdom suggests that this will increase capital intensity with falling rates of return to capital and increasing wages. This decreases welfare for middle aged asset rich households. This paper takes the perspective of the three demographically oldest European nations – France, Germany and Italy – to address three important adjustment channels to dampen these detrimental effects of aging in these countries: investing abroad, endogenous human capital formation, and increasing the retirement age. Our quantitative finding is that endogenous human capital formation in combination with an increase in the retirement age has strong implications for economic aggregates and welfare, in particular in the open economy. These adjustments reduce the maximum welfare losses of demographic change for households alive in 2010 by about 2.2 percentage points in terms of consumption equivalent variation.

This paper uses an OLG-CGE model for the UK to illustrate the long-term effect of migration on the economy. We use the current Conservative Party migration target to reduce net migration “from hundreds of thousands to tens of thousands” as an illustration. Achieving this target would require reducing recent net migration numbers by a factor of about 2. We undertake a simulation exercise to compare a baseline scenario, which incorporates the principal 2010-based ONS population projections, with a lower migration scenario, which assumes that net migration is reduced by around 50 per cent. The results show that such a significant reduction in net migration has strong negative effects on the economy. By 2060 the levels of both GDP and GDP per person fall by 11.0 per cent and 2.7 per cent respectively. Moreover, this policy has a significant impact on public finances. To keep the government budget balanced, the effective labour income tax rate has to be increased by 2.2 percentage points in the lower migration scenario.

In this paper, I show that traditional earnings related pay-as-you-go pension systems as we see them in many OECD countries subsidize human capital formation. The reason is that these systems come along with an implicit tax structure that features high tax rates at the beginning of working life and low tax rates toward the end. When the costs of human capital investment are mainly time costs, such an implicit tax structure lowers the costs of human capital investments and simultaneously increases the payoff. The fact that higher skilled workers tend to have steeper wage profiles over the working phase than the unskilled enforces this mechanism. I first show this result in a simple analytical model and then quantify the macroeconomic and welfare effects of making the implicit tax structure age independent in a large-scale overlapping generation model, in which households can invest in human capital both by going to college and through on-the-job training. In terms of welfare, such a reform comes along with a lot of intergenerational redistribution. Although the welfare of current retirees may increase by about 4.5% of their remaining life-time resources, current older workers will lose due to an increase in their implicit tax rates. The welfare of future generations slightly declines by 0.1%.