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126 CHAPTER 5


important general equilibrium interactions in an economic system. To mea- sure distributive impacts, CGE models often map factor incomes among dif- ferent types of households. The models have been applied in the analysis of policy changes in several developing countries. The change in the cost of living among segments of a population is then used to assess the impacts on income distribution. These studies provide an upper-bound measurement of the increase in income required for each group to purchase the same quanti- ties of goods that they purchase in the base situation.


Decaluwé et al. (1999) have evaluated the relevance of different types of macroeconomic general equilibrium modeling for measuring the impact of economic policy shocks on the incidence of poverty and on the distribution of income. Three approaches have been identified in the literature and imple- mented using an archetypal economy, as follows: 1. The first is based on a traditional form of the CGE model that specifies a large number of households, thus allowing the capture of only intergroup income inequalities.


2. The second uses survey data to estimate the distribution function and average variations by group, thereby allowing for estimates of the evolu- tion of poverty.


3. The third approach involves directly incorporating individual datasets into the general equilibrium model according to the principles of micro- simulation.


Studies have demonstrated the importance of intragroup information and therefore the relevance of microsimulation exercises. Even if we disaggregate the population of households into a few representative groups, we will still not be able to obtain relevant results regarding the evolution of total inequal- ity. Indeed, decomposable income indexes show that intragroup inequality often contributes more to total inequality measures than does intergroup inequality. Accordingly, the most promising direction consists in seeking true integration between the CGE model and the observed heterogeneity of house- holds as observed in a household survey.


There are two main ways to achieve consistency between a macro- economic framework and microeconomic surveys, as follows: 1. The first, proposed by Cogneau and Robilliard (2000), has been labeled the “fully integrated micro-macro framework.” It is based on a standard CGE model wherein representative households and workers are replaced by a full sample of households and workers whose behavior is observed through household and labor force surveys. The advantage of this method is its ability to capture the impact of macroeconomic changes on workers and households and also the feedback effects of microsimulation on the


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