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Behavioural Microsimulation Modelling for Tax Policy Analysis in Australia: Experience and Prospects

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Author Info

  • John Creedy

    ()
    (University of Melbourne)

  • Guyonne Kalb

    (University of Melbourne)

Abstract

This paper describes microsimulation modelling in non-technical terms and explains what can be achieved with microsimulation modelling in general, and the Melbourne Institute Tax and Transfer Simulator (MITTS) in particular. The focus is on behavioural microsimulation modelling, which takes individuals’ labour supply responses into account when analysing tax and transfer reforms. Microsimulation models are built to replicate closely the considerable degree of heterogeneity observed in the population. Several examples of recent uses of MITTS are given and briefly described. Given the relatively recent development of behavioural microsimulation models, there are several opportunities for further extensions. For example, it would be valuable to allow for the demand side of labour, indicating whether new labour force participants are likely to find work or to allow for life-cycle dynamics, which are important to deal with population-ageing issues and female labour force participation.

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Bibliographic Info

Article provided by Bankwest Curtin Economics Centre (BCEC), Curtin Business School in its journal Australian Journal of Labour Economics.

Volume (Year): 8 (2005)
Issue (Month): 1 (March)
Pages: 73-110

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Handle: RePEc:ozl:journl:v:8:y:2005:i:1:p:73-110

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Postal: GPO Box U1987, Perth WA 6845
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Web page: http://business.curtin.edu.au/research/publications/journals/ajle/
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Keywords: Fiscal Policies and Behavior of Economic Agents: Household (effects on labor supply) Social Security and Public Pensions General Welfare; Basic Needs; Living Standards; Quality of Life; Happiness;

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References

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  1. John Creedy & Guyonne Kalb, 2003. "Discrete Hours Labour Supply Modelling: Specification, Estimation and Simulation," Melbourne Institute Working Paper Series wp2003n16, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  2. V. Joseph Hotz & John Karl Scholz, 2001. "The Earned Income Tax Credit," NBER Working Papers 8078, National Bureau of Economic Research, Inc.
  3. Robert A. Moffitt, 2003. "Means-Tested Transfer Programs in the United States," NBER Books, National Bureau of Economic Research, Inc, number moff03-1, October.
  4. Duncan, Alan & Giles, Christopher, 1996. "Labour Supply Incentives and Recent Family Credit Reforms," Economic Journal, Royal Economic Society, vol. 106(434), pages 142-55, January.
  5. John Creedy & Guyonne Kalb & Rosanna Scutella, 2003. "Income Distribution in Discrete Hours Behavioural Microsimulation Models: An Illustration of the Labour Supply and Distributional Effects of Social Transfers," Melbourne Institute Working Paper Series wp2003n23, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  6. Duncan, Alan & Harris, Mark N, 2002. "Simulating the Behavioural Effects of Welfare Reforms among Sole Parents in Australia," The Economic Record, The Economic Society of Australia, vol. 78(242), pages 264-76, September.
  7. Ebert, Udo, 1997. "Social Welfare When Needs Differ: An Axiomatic Approach," Economica, London School of Economics and Political Science, vol. 64(254), pages 233-44, May.
  8. S. Rao Aiyagari, 1993. "Uninsured idiosyncratic risk and aggregate saving," Working Papers 502, Federal Reserve Bank of Minneapolis.
  9. Pierre-Olivier Gourinchas & Jonathan A. Parker, 2002. "Consumption Over the Life Cycle," Econometrica, Econometric Society, vol. 70(1), pages 47-89, January.
  10. John Creedy & Alan Duncan, 2001. "Aggregating labour supply and feedback effects in microsimulation," IFS Working Papers W01/24, Institute for Fiscal Studies.
  11. Cathal O'Donoghue, 2001. "Dynamic Microsimulation: A Methodological Survey," Brazilian Electronic Journal of Economics, Department of Economics, Universidade Federal de Pernambuco, vol. 4(2), December.
  12. Cameron, Lisa & Creedy, John, 1995. "Indirect Tax Exemptions and the Distribution of Lifetime Income: A Simulation Analysis," The Economic Record, The Economic Society of Australia, vol. 71(212), pages 77-87, March.
  13. Hilary Hoynes & Richard Blundell, 2001. "Has "In-Work" Benefit Reform Helped the Labour Market?," NBER Working Papers 8546, National Bureau of Economic Research, Inc.
  14. Blundell, Richard William & Ham, John & Meghir, Costas, 1987. "Unemployment and Female Labour Supply," CEPR Discussion Papers 149, C.E.P.R. Discussion Papers.
  15. John Creedy & Guyonne Kalb & Hsein Kew, 2001. "The Melbourne Institute Tax and Transfer Simulator (MITTS)," Melbourne Institute Working Paper Series wp2001n16, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  16. James Banks & Richard Blundell & Arthur Lewbel, 1994. "Tax reform and welfare measurement: do we need demand system estimation?," IFS Working Papers W94/11, Institute for Fiscal Studies.
  17. Imrohoruglu, Ayse, 1989. "Cost of Business Cycles with Indivisibilities and Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1364-83, December.
  18. John Creedy & Guyonne Kalb & Hsein Kew, 2004. "Confidence Intervals for Policy Reforms in Behavioural Tax Microsimulation Modelling," Melbourne Institute Working Paper Series wp2004n32, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  19. Guyonne Kalb & Rosanna Scutella, 2002. "Estimation of Wage Equations in Australia: Allowing for Censored Observations of Labour Supply," Melbourne Institute Working Paper Series wp2002n08, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  20. Richard Blundell & Alan Duncan & Julian McCrae & Costas Meghir, 2000. "The labour market impact of the working families’ tax credit," Fiscal Studies, Institute for Fiscal Studies, vol. 21(1), pages 75-103, March.
  21. Guyonne Kalb & Hsein Kew & Rosanna Scutella, 2003. "Effects of the Australian New Tax System on Government Expenditure With and Without Behavioural Changes," Melbourne Institute Working Paper Series wp2003n09, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  22. Lixin Cai & John Creedy & Guyonne Kalb, 2004. "Accounting for Population Ageing in Tax Microsimulation Modelling by Survey Reweighting," Melbourne Institute Working Paper Series wp2004n26, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  23. Hansen, Gary D & Imrohoroglu, Ayse, 1992. "The Role of Unemployment Insurance in an Economy with Liquidity Constraints and Moral Hazard," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 118-42, February.
  24. Guyonne Kalb, 2002. "Estimation of Labour Supply Models for Four Separate Groups in the Australian Population," Melbourne Institute Working Paper Series wp2002n24, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  25. Creedy, John & van de Ven, Justin, 2001. "Decomposing Redistributive Effects of Taxes and Transfers in Australia: Annual and Lifetime Measures," Australian Economic Papers, Wiley Blackwell, vol. 40(2), pages 185-98, June.
  26. Richard Blundell & Thomas MaCurdy, 1998. "Labour supply: a review of alternative approaches," IFS Working Papers W98/18, Institute for Fiscal Studies.
  27. Atkinson, M E & Creedy, John & Knox, D M, 1996. "Alternative Retirement Income Strategies: A Cohort Analysis of Lifetime Redistribution," The Economic Record, The Economic Society of Australia, vol. 72(217), pages 97-106, June.
  28. Imrohoroglu, Ayse, 1992. "The welfare cost of inflation under imperfect insurance," Journal of Economic Dynamics and Control, Elsevier, vol. 16(1), pages 79-91, January.
  29. John Creedy & Guyonne Kalb & Hsein Kew, 2003. "Flattening the Effective Marginal Tax Rate Structure in Australia: Policy Simulations Using the Melbourne Institute Tax and Transfer Simulator," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 36(2), pages 156-172.
  30. Klevmarken, N. A., 1997. "Modelling Behavioural Response in EUROMOD," Cambridge Working Papers in Economics 9720, Faculty of Economics, University of Cambridge.
  31. Apps, Patricia & Savage, Elizabeth, 1989. "Labour supply, welfare rankings and the measurement of inequality," Journal of Public Economics, Elsevier, vol. 39(3), pages 335-364, August.
  32. Denise J. Doiron, 2004. "Welfare Reform and the Labour Supply of Lone Parents in Australia: A Natural Experiment Approach," The Economic Record, The Economic Society of Australia, vol. 80(249), pages 157-176, 06.
  33. Creedy, J. & Van de Ven, J., 1998. "The Redistributive Effect of Selected Australian Taxes and Transfers on Annual and Lifetime Inequality," Department of Economics - Working Papers Series 658, The University of Melbourne.
  34. Sefton, J. A., 2000. "A solution method for consumption decisions in a dynamic stochastic general equilibrium model," Journal of Economic Dynamics and Control, Elsevier, vol. 24(5-7), pages 1097-1119, June.
  35. Callan, Tim, 2000. "Taxes, Transfers and Labour Market Responses: What can Microsimulation tell us?," Research Series, Economic and Social Research Institute (ESRI), number PRS36.
  36. John Creedy & Rosanna Scutella, 2003. "The Role of the Unit of Analysis in Tax Policy Reform Evaluations," Melbourne Institute Working Paper Series wp2003n28, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
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Cited by:
  1. van Sonsbeek, J.M. & Gradus, R.H.J.M., 2006. "A microsimulation analysis of the 2006 regime change in the Dutch disability scheme," Economic Modelling, Elsevier, vol. 23(3), pages 427-456, May.
  2. Robert Breunig & Deborah Cobb-Clark & Xiaodong Gong, 2005. "Improving the Modeling of Couples' Labour Supply," CEPR Discussion Papers 499, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  3. Christian Dreger & Manuel Art�s & Rosina Moreno & Raúl Ramos & Jordi Suri�ach, 2007. "Study on the feasibility of a tool to measure the macroeconomic impact of structural reforms," European Economy - Economic Papers 272, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  4. Alan S Duncan & Mark N Harris & Anthony Harris & Eugenio Zucchelli, 2013. "The Influence of Psychological Well-being, Ill Health and Health Shocks on Single Parents' Labour Supply," Bankwest Curtin Economics Centre Working Paper series WP1307, Bankwest Curtin Economics Centre (BCEC), Curtin Business School.

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