CGEM for Moldova with Factor Markets and Intermediate Inputs

In this article the attempt to examine the effects of tax policy in the framework of two-sector model with factor markets and intermediate goods is considered. In this connection the difference between intermediate and final goods is introduced. Model was extended to introduce the imported and domestic intermediate goods and production functions to produce domestic goods and exports. The basic model refers to one country with two producing sectors and three goods. Two commodities that the country produces are an export good, which is sold to foreigners and is not demanded at home, and a domestic good, which is only sold domestically. The third good is an import, which is not produced domestically. There is one consumer who receives all income. The country is small in world markets, facing fixed world prices for exports and imports. Three economic agents operate in the model: a producer, a household, and the rest of the world. Adjustments in the real exchange rate in response to exogenous shocks to the economy and three price-wedge government policy instruments: an import tariff, an export subsidy, and an indirect tax on domestic sales are included. The single household saves a fraction of its income. Real government expenditure is assumed fixed and the government deficit or surplus is subtracted or added to aggregate savings. The balance of trade is assumed to represent foreign savings. In order to estimate efficiency effects of tax policy, it is very important to distinguish between intermediate and final goods. In this