The author thanks Nicholas Gruen, Maureen Rimmer and Robert Waschik for valuable comments on an earlier draft.
Comments on the Productivity Commission’s Modelling of the Economy-Wide Effects of Future Automotive Assistance*
Article first published online: 21 APR 2009
© 2009 The Economic Society of Australia
Economic Papers: A journal of applied economics and policy
Volume 28, Issue 1, pages 11–18, March 2009
How to Cite
Dixon, P. B. (2009), Comments on the Productivity Commission’s Modelling of the Economy-Wide Effects of Future Automotive Assistance. Economic Papers: A journal of applied economics and policy, 28: 11–18. doi: 10.1111/j.1759-3441.2009.00004.x
- Issue published online: 21 APR 2009
- Article first published online: 21 APR 2009
- tariff cuts;
- Productivity Commission;
- economic modelling
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.