**Table 8: Reference elasticity of substitution in production, by activity**

|Activity|Elasticity|Activity|Elasticity|
|---|---|---|---|
|Agriculture, Forestry, and Fisheries|0.60|Metal Products Excluding Machinery|0.60|
|Coal Mining|0.20|Machinery and Equipment|0.25|
|Gold and Uranium Ore Mining|0.20|Electrical Machinery|0.60|
|Other Mining|0.20|TV, Radio, and Communication Equip|0.60|
|Food|0.60|Professional and Scientific Equip|0.60|
|Beverages and Tobacco|0.40|Motor Vehicles Parts and Accessories|0.25|
|Textiles|0.30|Other Transport Equipment|0.25|
|Wearing Apparel|0.60|Furniture|0.25|
|Leather and Leather Products|0.60|Other Industries|0.60|
|Footwear|0.29|Electricity, Gas, and Steam|0.60|
|Wood and Wood Products|0.25|Water Supply|0.60|
|Paper and Paper Products|0.60|Construction and Civil Engineering|0.60|
|Printing, Publishing, and Recorded Media|0.34|Wholesale and Retail Trade|0.60|
|Coke and Refined Petroleum Products|0.44|Catering and Accommodation|0.60|
|Basic Chemicals|0.60|Transportation and Storage|0.60|
|Other Chemicals and Man-Made Fibers|0.60|Communication|0.60|
|Rubber Products|0.44|Financial Services|0.60|
|Plastic Products|0.44|Business Services|0.60|
|Glass and Glass Products|0.35|Health, Community, Social, and Personal Services|0.60|
|Non-metallic Minerals|0.61|Other Producers|0.60|
|Basic Iron and Steel|0.25|Government Services|0.60|
|BasicNon-ferrousMetals|0.25|||

Source: CGE model database.

Input substitution possibilities vary by production activity. A set of multipliers (Table 7) are applied to all sectors, providing similar “structure”or “nesting”of elasticities; however, sectors have different reference elasticities (Table 8). Given the lack of empirical estimates regarding the exact magnitudes of factor substitution, we provide sensitivity tests and consider three cases - low substitution elasticities, base substitution elasticities, and high substitution elasticities. In the base case, the reference elasticities of substitution in Table 8 are multiplied directly by the factors in Table 7. The resulting base case numbers correspond generally to conservative numbers found in various CGE works, including Essama-Nssah _et al._ , (2007) and Kearney (2004). Low substitution elasticity values are one half those reported in Table 7, high substitution elasticity values are two times those reported in Table 7. When the production process is assumed to be constant elasticity of substitution (CES), the values in Table 8 are used.

**_Macroeconomic closures._** At the macro level, we assume that government’s real spending, real investment, and aggregate foreign savings are constant. Private savings adjust in order to maintain a fixed total investment in the economy and all changes affect household consumption.  This is a standard approach in public finance analysis of revenue and welfare issues as it provides the results of the wage subsidy in isolation of other macroeconomic adjustment shocks, e.g., from any changes in investment or government expenditure.<sup>14</sup> Domestic

14The crowding out of private investment is therefore not the focus. The other option of adjusting government expenditure in the budget, while feasible, is constrained by the indirect links between public services and household

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