A policy model for income growth and distribution using econometric and programming techniques: the Taiwan case

A computable general equilibrium model is developed by means of an extended input-output model under realistic constraints at two levels: sectoral and aggregative. Econometric estimates of sectoral production functions and a linear programming test that imposes resource and other constraints are performed for the economy of Taiwan to evaluate the trade-off between income growth and income equality, which is otherwise known as Kuznets hypothesis. Several policy scenarios, such as export promotion and import substitution as well as shortages of foreign exchange, are examined to evaluate their impact on the economy, its growth and the income distribution pattern.

The simulated profiles and linear programming experiments appear not to support the so-called Kuznets hypothesis for Taiwan in her drive towards industrial growth in recent years. This inference is upheld even when capital-labour substitution is econometrically estimated for each sector and then integrated with the input-output model