Accounting for Behavioral Effects in Microsimulation : A Reduced Form Approach




Ollonqvist, Joonas; Tervola, Jussi; Pirttilä, Jukka; Thoresen, Thor Olav

PublisherInternational Microsimulation Association

2024

International Journal of Microsimulation

International Journal of Microsimulation

17

3

44

72

1747-5864

DOIhttps://doi.org/10.34196/ijm.00311

https://doi.org/10.34196/ijm.00311

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.


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.


Last updated on 2025-27-01 at 19:32