TITLE:
Unveiling Cost Burden Interdependencies with the Use of the Hypothetical Extraction Method
AUTHORS:
Ana-Isabel Guerra Guerra, Ferran Sancho
KEYWORDS:
Cost Burden, Extraction Method, Interindustry Interdependencies, Price Linkages
JOURNAL NAME:
Theoretical Economics Letters,
Vol.5 No.2,
March
31,
2015
ABSTRACT: Networked economies
constitute an interlocked mechanism of direct effects and indirect feedbacks.
Each piece of the mechanism plays a specific role influencing the overall
performance of the system. In the setup of an interindustry economy, the
interlocked pieces are typical economic sectors. Any sector influences other
sectors and is in turn being influenced by them. We propose a new methodology
to unveil the underlying cost linkage effects being exerted by sectors and affecting
the complete price system. The methodology reformulates the Hypothetical
Extraction Method, usually applied to the quantity side of the economy, and
extends it to the cost side of the economy. The derived cost linkage indicators
reveal valuable information that may be used in the design of tax reforms or
efficiency policies. We present a practical example of the capacities of this
new proposal using US data.