Comments on the Productivity Commission’s Modelling of the Economy‐Wide Effects of Future Automotive Assistance*

Peter Dixon

Economic Papers, 2009, vol. 28, issue 1, 11-18

Abstract: The Productivity Commission claims on the basis of computable general equilibrium modelling that a seemingly small reduction in assistance to the Australian Automotive industry (a cut in tariffs from 10 per cent to 5 per cent and elimination of the ACIS scheme) would generate an annual welfare benefit of about $500 million. I explain that this implausible result rests on an implicit manna‐from‐heaven assumption. Using results published by the Commission, I rework their welfare calculations. With parameter values favoured by them, the corrected annual welfare gain is $66 million. With what I consider more realistic parameter values, the welfare effect is negative.

Date: 2009
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