1. WorldScan and Models Brussels 16-3-2007 WorldScan and the Models project Paul Veenendaal CPB Netherlands Bureau for Economic Policy Analysis

2. WorldScan and Models Brussels 16-3-2007 WorldScan General equilibrium (micro foundations) Interaction: markets, countries and sectors (GTAP-6 classifications) Recursively dynamic model Econometrically underpinned ► consumer demand, savings, capital mobility, R&D spillovers Many toggle-wise extensions (variations on a core version) ► climate change ► monopolistic competition and increasing returns ► foreign direct investments ► R&D sector and endogenous R&D decisions

3. WorldScan and Models Brussels 16-3-2007 Background: five Lisbon highlights Showing economic impacts of reaching Lisbon targets ► economic growth: EU and member states ► sectoral structure Five targets ► employment, R&D, human capital, administrative burden, services directive What-if: targets reached by assumption! ► no assessment of realism 2010 ► costs of policy measures: only partly included Uncertainty: lower and upper bound ► employment, R&D

4. WorldScan and Models Brussels 16-3-2007 Effects of five Lisbon targets, EU, lower bound, 2025 (%)

5. WorldScan and Models Brussels 16-3-2007 Proposed WorldScan contributions to Models In general ► Assess ‘How to..’ in stead of ‘What if..’ ► Identify (most cost-effective) policy instruments ► Analyse sensitivity of assessments for model parameters that are relatively uncertain In particular ► How to reach the employment target? ► What are the impacts of human capital formation on economic growth? ► Which relationships can be identified in the field of competition, innovation and productivity?

6. WorldScan and Models Brussels 16-3-2007 Assessment of policies to reach the employment target Expanded WorldScan database with ► Income tax data ► Social security benefits ► Institutional data at member state level ► Government budget composition Labour market module ► Endogenous labour supply ► Wage bargaining model to derive the wage curve and equilibrium unemployment ► Age-cohort satellite model for the participation of the elderly ► Explicit, small government sector Policy analysis paper ‘How to reach the Lisbon employment target?’

7. WorldScan and Models Brussels 16-3-2007 Human capital and growth Expanded WorldScan database with ► Additional and improved skills data ► Policy instruments used in EU member states Skills satellite model ► Crucial parameter re-estimation ► Sensitivity analysis of parameters that remain relatively uncertain WorldScan ► Possibly transfer of satellite model’s skills categories ► Scenario analysis of skill-biased technological change Paper on effectiveness of policy instruments to raise human capital

8. WorldScan and Models Brussels 16-3-2007 Competition, innovation and productivity Most challenging (or: puzzling) part of the project ► WorldScan ‘as it is’ relations –EU-wide fostering of competition in services –Economic benefits of lowering the administrative burden –R&D analyses, inclusive of spill-overs ► Still lacking –Relationship between competition and innovation Papers ► Impacts of liberalising services markets ► Competition policy options and their potential impacts?

9. WorldScan and Models Brussels 16-3-2007 Proposed sequence in time Employment ► Potentially large impacts on growth ► Complicated, data-intensive, model-intensive ► Yet, in principle doable Human capital formation ► Ample scope for improvement of the ‘Five highlights’ analysis Competition, innovation and productivity ► Least developed in theory, empirics and model implementations ► Services deregulation partly in tandem with CEPII