Reform of Australian urban transport: A CGE-microsimulation analysis of the effects on income distribution

a r t i c l e i n f o Australian urban transport industries experienced substantial reform during the 1990s leading to significant structural change. Urban transport is typically an important expenditure item for households and structural change in these services may affect households differently depending on their position in the distribution of income and expenditure. We estimate the effects on household income groups of this structural change by applying a computable general equilibrium model incorporating microsimulation behaviour with top-down and bottom-up links. We compare estimates based on a pure microsimulation approach, a top-down approach and a hybrid top-down/bottom-up approach. We estimate small reductions in real income and small reductions in inequality; this pattern is largely replicated across regions. Our results are insensitive to the inclusion of bottom-up links; in contrast, applying a pure microsimulation approach gives accurate results at the aggregate level but underestimates the variation in effects across deciles and regions. Urban travel is an important component of daily life for households in most high-income countries, but particularly so for Australia where 85% of the population lives in urban areas. Of the three main modes of urban transport in Australia (road, rail and water) road and rail are the most important. Before the 1990s, most urban transport services in Australia were heavily subsidised by governments, and governments commonly either provided public transport directly or regulated the fares of private service providers (IC, 1994; PC, 2002). Around this time, Australian governments began an extensive process of microeco-nomic reform of Australian infrastructure industries; this included utilities (e.g., gas, water and electricity supply) as well as urban transport. The reforms were part of the process motivated by the Hilmer Report (Commonwealth of Australia, 1993). The main objective of these reforms was to increase competition and performance in these industries. Infrastructure industries are generally major service providers, so the reform of these industries can potentially have significant impacts on households, businesses and on other industries. For households, changes in infrastructure prices will directly affect household incomes via cost-of-living changes. But changes in infrastructure prices can also indirectly affect the cost structure and competitiveness of downstream industries. In turn, this will affect factor incomes to some extent. Changes in factor incomes will affect household incomes; unless such changes affect all households evenly, the distribution of income will also change. Our focus is on quantifying the direct and indirect effects of structural change …