Evolutions in a General Equilibrium Framework With Production, Taxes, and Subsidies

Abstract

In this Chapter we are going to present a notably comprehensive static framework of general equilibrium which includes production and also a wide variety of tax and subsidy schemes. We employ the formulation by Kehoe (1985b). He ensures overall consistency of the model by providing a proof of existence of equilibrium that is both simpler and more general than those given previously by, for example, Shoven and Whalley (1973) and Todd (1979). Kehoe considers this framework particularly intended for researchers who employ empirical general equilibrium models for policy analysis (cf. Kehoe, 1985b, p. 315). Actually, for the purposes of our study this framework has still a further remarkable advantage: it contains parameters which in principle can be controlled by an economic policy institution. This will become important for our later applications in Chapter 19.