The Role of Defense Cuts in the California Recession: Computable General Equilibrium Models and Interstate Factor Mobility

Hoffman, Sandra; Robinson, Sherman; Subramanian, Shankar

The Role of Defense Cuts in the California Recession: Computable General Equilibrium Models and Interstate Factor Mobility

Autores

Hoffman, Sandra

Robinson, Sherman

Subramanian, Shankar

Descripción

This study develops a computable general equilibrium (CGE) model to examine the impact of recent defense cuts on California's economy. The study demonstrates use of a CGE model to examine the sensitivity of regional economy models to assumptions about factor migration. The results show that California is indeed sensitive to defense cuts, but that the perceptions of workers and producers about the permanency of the cuts and about other future opportunities in the state economy significantly affect gross state product (GSP) multipliers. Depending on how these perceptions affect factor migration, GSP multipliers can be expected to range from 1 to almost 5.