Dynamic, Multi-Sector CGE Modeling and the Specification of Capital

Dynamic multi-sector computable general equilibrium (CGE) models often utilize investment aggregation according to fixed shares. The question is, do these models come to the same policy conclusions as CGE models that derive sectoral investment shares by optimal household decisions in a framework with heterogeneous capital? Two models - a model with heterogeneous capital, and a second model with a capital aggregate (and fixed investment shares) - show that the impact of the same given tax shock is strikingly different in the two models. The paper also shows under which conditions the two models bring about "similar" policy conclusions