Download Overview of the SUST

ISEEM Model
Ivan Shkrebela (CEFIR)
ISEEM belongs to the group of NEG-CGE
models
regional model:
 interregional trade flows
 transport trips
 migration
Agents in the ISEEM
model





producers (26 production sectors)
consumers (household deciles)
government (regional and federal)
investors
the ‘foreign sector’
Households



model distinguishes multiple households in each
province. Each household type represents one income
decile.
The households vary in the composition of their
consumption bundle, savings, income taxes, factor
endowments, income from transfers and unemployment
benefits.
The utility of the household is maximized under the
budget constraint, where the household’s consumption
spending is equal to its income minus income tax and the
household’s savings.
Labour market

It is assumed that each region posts a set of
vacancies, based on the job destruction and
vacancy generation rate within each region.
An increase in the demand for labour leads
to an increase in the amount of vacancies,
which can be filled in by unemployed within
the region as well as unemployed from the
other regions. The probability that a match
occurs between an unemployed and an open
vacancy depends negatively on the time and
monetary cost between the regions.
Production technology



ISEEM contains 26 regional production
sectors using labour, capital, land, buildings,
energy and intermediate goods in their
production process
Inputs of the sectors are combined according
to the Constant Elasticity of Substitution
(CES) technology
intermediate goods are used in the fixed
proportions of the aggregated materials nest,
using Leontief technology.
Monopolistic competition


It is assumed that each regional
(provincial) sector contains a certain
number of firms, producing slightly
differentiated goods and services.
all firms are assumed to be
homogenous and have the same
production technology, the same
output size and the same fixed
production costs.
Government

In ISEEM we distinguish, besides the
Federal Government (which also
includes the municipalities): the
Flemish region, Walloon region,
French language community, Brussels
region and 3 smaller governments
within Brussels.
Government


Each government gets 2 types of income:
tax revenues from the economic agents
within the regions under its jurisdiction and
income from intergovernment transfers.
The federal government level is responsible
for collecting the largest part of the tax
revenues; this concerns the full income tax
and social security benefits, as well as a
large share of the other taxes.
investment and savings
Savings in the economy are made by:

households

government

and the rest of the world.
Implications


modelling a new transport tax or subsidy, or
changing the initial time and monetary costs
of transport trips between the regions.
The model can also handle a variety of
labour market policies, such as: changing
the social contributions paid by employers
and/or employees, changing the income tax
rates for different income deciles, modifying
the unemployment benefits or even paying
back a part of the commuting costs made by
employees.
Implications


ISEEM also makes predictions on the
amount of commuters and business
trips between the regions as a result of
the simulation.
The integration of air pollution makes it
possible to check, besides economic
benefits or losses, the effect on the
environmental damages of pollutants.
Implications

Estimation of effect of pollutants on the
environmental damages.
Dynamic


ISEEM contains an option to run
dynamically, based on the accumulation of
investments to capital in each sector and
region and the sectoral rate of return in the
previous period.
The dynamic version runs a sequence of
equilibria for each time period (year) and is
recalibrated based on a constant growth
path.