An optimal quadratic equilibrium model based on Israel's multiregional input-output tables

This paper develops a quadratic multiregional input-output (QMRIO) model which allows for evaluation of the effects of economic policy on various geographical regions of an economy. The model has a quadratic target function representing society's welfare. The coefficients of the target function are acquired from estimates of the supply and demand systems. In the current application, the model's parameters are derived from the multiregional input-output tables of the Israeli economic system. The interregional impact of a tax reduction, aimed at the population of the Southern Negev, was studied, and a welfare cost-benefit analysis carried out. It was shown that the resulting welfare for consumers in the Southern Negev is increased, while the opposite occurs for consumers in all other regions of the country. Coincidentally, the producers' welfare is increased nationwide.