How Large Do Multi-Region Models Need to Be?

29 Pages Posted: 8 Nov 2012

See all articles by Florenz Plassmann

Florenz Plassmann

SUNY at Binghamton, Department of Economics

Andrew Feltenstein

Georgia State University - Department of Economics

Date Written: October 31, 2012

Abstract

Given the connectedness of most states with their neighbors, any economic analysis of changes in a state’s policy needs to account for the interdependence between states. We examine in how much detail one needs to model the factor and commodity flows between states, and how much, if anything, is lost in the aggregation of neighboring states into larger regions. We develop nine dynamic multi-region general equilibrium models of the United States, with different aggregations of states (a two-region model, a 7-region model, and a full 51-region model) and different assumptions regarding intermediate inputs. We examine the same policy change with these nine models, and find that all nine models suggest very similar economic effects of the policy change in the first year. Our overall conclusion is that the policy implications that one might draw from small and highly aggregate models are fairly robust.

Keywords: Multi-region, tax model, non-Armington, computational general equilibrium

JEL Classification: D58, H71, H73

Suggested Citation

Plassmann, Florenz and Feltenstein, Andrew, How Large Do Multi-Region Models Need to Be? (October 31, 2012). Andrew Young School of Policy Studies Research Paper Series No. 12-21. Available at SSRN: https://ssrn.com/abstract=2172370 or http://dx.doi.org/10.2139/ssrn.2172370

Florenz Plassmann

SUNY at Binghamton, Department of Economics ( email )

Binghamton, NY 13902-6000
United States
607-777-4304 (Phone)

Andrew Feltenstein (Contact Author)

Georgia State University - Department of Economics ( email )

P.O. Box 3992
Atlanta, GA 30302-3992
United States
404-4130093 (Phone)

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