A dynamic CGE model for jointly accounting ageing population, automation and environmental tax reform. European Union as a case study

Valeria Costantini and Giorgia Sforna

Economic Modelling, 2020, vol. 87, issue C, 280-306

Abstract: We develop a dynamic Computable General Equilibrium model based on the combination of different versions of GTAP utilities where alternative scenarios on ageing population trends are combined with projections on the incidence of automation into production processes and the adoption of unilateral decarbonisation policies. By simultaneously controlling for these different challenges that especially developed countries should face in the next decades, it is possible to disentangle non-linear mechanisms that will influence sustainability of public budget when the three issues are jointly combined. The European Union is taken as a case study. The first result is that ageing trends will impact fiscal sustainability reducing the EU capacity to respect the Stability and Growth Pact parameters. Second, when also considering technical change related to automation and robotics in the production process, fiscal sustainability will improve only in the case of input-neutral technological change. On the contrary, if biased technical change produces unemployment impact, negative impacts of ageing population are reinforced by automation. Third, the adoption of an environmental tax, here modelled in the form of a carbon price, leads to an improvement in environmental sustainability but has non-linear effects of fiscal sustainability.

Keywords: Ageing population; Automation; Factor productivity; Welfare expenditures; European Union; Fiscal sustainability; Environmental tax reform (search for similar items in EconPapers)
JEL-codes: C68 H23 H53 H68 J11 Q54 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:87:y:2020:i:c:p:280-306

DOI: 10.1016/j.econmod.2019.08.004

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