A1 Refereed original research article in a scientific journal
Accounting for Behavioral Effects in Microsimulation : A Reduced Form Approach
Authors: Ollonqvist, Joonas; Tervola, Jussi; Pirttilä, Jukka; Thoresen, Thor Olav
Publisher: International Microsimulation Association
Publication year: 2024
Journal: International Journal of Microsimulation
Journal name in source: International Journal of Microsimulation
Volume: 17
Issue: 3
First page : 44
Last page: 72
eISSN: 1747-5864
DOI: https://doi.org/10.34196/ijm.00311
Web address : https://doi.org/10.34196/ijm.00311
Self-archived copy’s web address: https://research.utu.fi/converis/portal/detail/Publication/478219334
Microsimulation models are used worldwide to assist in the policy-making of governments. The simulation models may be purely non-behavioral or they may also include modules that simulate labor supply responses to the policy change in question. The present paper demonstrates how the practitioner can employ exogeneously given response estimates to account for behavioral effects in this type of work. Response estimates are combined with individual changes in work incentives at both the extensive and intensive margins. The concepts of the participation tax rate (PTR) and the effective marginal tax rate (EMTR) are employed. In the empirical illustration we discuss distributional and social welfare effects arising from the changes in Finnish taxes and benefits that took effect in 2020.
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Funding information in the publication:
This research was financially supported by the Finnish Economic Policy Council and the INVEST Research Flagship (Research Council of Finland decision number: 345546) as well as the Finnish Centre for Tax Systems Research (Grant nr. 346251). The funders had no role in the study design, data collection and analysis, decision to publish, or preparation of the manuscript.
