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Income differences and input-output structure

Harald Fadinger, Christian Ghiglino and Mariya Teteryatnikova

No 15-11, Working Papers from University of Mannheim, Department of Economics

Abstract: We consider a multi-sector general equilibrium model with IO linkages, sector-specific productivities and tax rates. Using tools from network theory, we investigate how the IO structure interacts with productivities and taxes in the determination of aggregate income. We show that aggregate income is a simple function of the first and second moments of the distribution of the IO multipliers, sectoral productivities and sectoral tax rates. We then estimate the parameters of the model to fit their joint empirical distribution. Poor countries have more extreme distributions of IO multipliers than rich economies: there are a few high-multiplier sectors, while most sectors have very low multipliers; by contrast, rich countries have more sectors with intermediate multipliers. Moreover, the correlations of these with productivities and tax rates are positive in poor countries, while being negative in rich ones. The estimated model predicts cross-country income differences extremely well, also out-of-sample. Finally, we perform a number of counterfactuals and compute optimal tax rates.

Keywords: input-output structure; networks; productivity; cross-country income differences (search for similar items in EconPapers)
JEL-codes: C67 D85 O11 O14 O47 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-hme
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Related works:
Working Paper: Income Differences and Input-Output Structure (2016) Downloads
Working Paper: Income Differences and Input-Output Structure (2015) Downloads
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