Income Distribution in Computable General Equilibrium Modeling

Studying the poverty and income distribution effects of macroeconomic policies or shocks requires a methodology that accounts on the one hand for the nature of the policy or shock being studied and their aggregate impact on the economy and, on the other hand, the heterogeneity of their overall effects among individuals or households at the micro level. Standard evaluation methods are of little use here. Methods based on the comparison between individuals exposed and not exposed to the policy or shock are clearly not applicable since, by definition, all individuals are affected by any policy with some macroeconomic dimension. The evaluation methodology thus needs to rely not only on a micro but also on a macro counterfactual within some kind of general equilibrium setting.