WIPOSIM – The economic policy online simulator

Together with Eckhard Hein, Achim Truger, Franz Prante and Till van Treeck

Goal of WIPOSIM is to extend texts and simulations developed in the previous project MGWK. Here we focused on current challenges in economic policy in three selected areas of interest: inequalities and income distribution, fiscal policy and public debt, ecology and macroeconomics. At the following link you may find a short video introduction to the project WIPOSIM.

My contribution to the project focused mainly on the first two subject areas.

Fiscal policy and public debt:

✅ In the text Fiscal policy and public debt we introduce the government budget identity and derive the factors determining the evolution of the debt-to-GDP ratio. We then discuss the question of debt sustainability and illustrate the role of the primary balance. To conclude, we discuss the main European fiscal rule from a critical perspective. With a series of simple applications, we simulate the concepts explained in the text.

• Evolution of the debt-to-GDP ratio under different assumptions about real growth rate, real interest rate, government deficit, and the initial value of the debt ratio
• Evolution of the debt-to-GDP ratio with real growth rate, nominal interest rate, and inflation rate
• Sustainability boundary, sustainability area and the dynamics of the debt-to-GDP ratio
• Required primary balance for the debt ratio to converge towards the 60% debt target in 20 years
• Required primary balance to bring debt to target in a predefined number of years

✅ In a second text Fiscal policy and the debt-to-GDP ratio. A seemingly counterintuitive effect?, using some simple “Keynesian arithmetic”, we show the conditions under which fiscal policy might have a counter intuitive effect on the debt ratio.

With simplified assumption about deficit spending:

• Deficit spending and the debt-to-GDP ratio - a seemingly counterintuitive effect? The effect in the short run
• Deficit spending and the debt-to-GDP ratio - a seemingly counterintuitive effect? The effect in the long run

With deficit spending determined endogenously by tax revenues:

• Deficit spending and the debt-to-GDP ratio - a seemingly counterintuitive effect? The effect in the short run
• Deficit spending and the debt-to-GDP ratio - a seemingly counterintuitive effect? The effect in the long run

✅ In the following application the effect of fiscal policy on the debt-to-GDP ratio can be tested in a simple stock-flow consistent (SFC) model of the closed economy. The model consists of three sectors. The households sector, the firms sector and the government sector. What is the effect of a permanent increase in the level of government spending on the debt ratio? What happens to the debt ratio when government spending grows at a constant rate?

• Fiscal policy in a simple SFC model of the closed economy

✅ The following dashboard allows to perform short- and long-term projections of the debt ratio for eurozone countries starting from recent values. Data are obtained from the AMECO database.

• Fiscal policy dashboard

Inequalities and income distribution:

✅ With our inequality simulator we aim to extend Piketty’s r>g basic model by including three separate household groups. Households are subdivided into TOP (T), MIDDLE (M) and BOTTOM (B) households.

• The simulator can be accessed here
• We recommend reading the introductory text before using the model. The text can be accessed here

✅ In the text Effects of the gender wage gap in a simple post-Keynesian / Kaleckian macroeconomic model we introduce the effects of a gender wage gap in a simple heterodox macroeconomic model of the closed economy. The model is developed in the post-Keynesian / Kaleckian tradition.

• The introductory text with the description of the model can be accessed here
• The app showing the model’s goods market equilibrium with a gender wage gap can be accessed here

For more information and contents visit the project website!

Funded by:

Project partners:

---