Equilibrium policy simulations with random utility models of labour supply
AbstractMany microeconometric models of discrete labour supply include alternative-specific constants meant to account for (possibly besides other factors) the density or accessibility of particular types of jobs (e.g. parttime jobs vs. full-time jobs). The most common use of these models is the simulation of tax-transfer reforms. The simulation is usually interpreted as a comparative static exercise, i.e. the comparison of different equilibria induced by different policy regimes. The simulation procedure, however, typically keeps fixed the estimated alternative-specific constants. In this note we argue that this procedure is not consistent with the comparative statics interpretation. Equilibrium means that the number of people willing to work on the various job types must be equal to the number of available jobs. Since the constants reflect the number of jobs and since the number of people willing to work change as a response to the change in tax-transfer regime, it follows that the constants should also change. A structural interpretation of the alternative-specific constants leads to the development of a simulation procedure consistent with the comparative static interpretation. The procedure is illustrated with an empirical example.
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Bibliographic InfoPaper provided by Collegio Carlo Alberto in its series Carlo Alberto Notebooks with number 156.
Length: 14 pages
Date of creation: 2010
Date of revision:
Random Utility; Discrete Choice; Labour Supply; Simulation of tax reforms; Alternative-specific constants; Equilibrium simulation;
Other versions of this item:
- Colombino Ugo, 2010. "Equilibrium policy simulations with random utility models of labour supply," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201015, University of Turin.
- Colombino, Ugo, 2010. "Equilibrium Policy Simulations with Random Utility Models of Labour Supply," IZA Discussion Papers 5262, Institute for the Study of Labor (IZA).
- C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
- J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-30 (All new papers)
- NEP-CMP-2010-10-30 (Computational Economics)
- NEP-DCM-2010-10-30 (Discrete Choice Models)
- NEP-LAB-2010-10-30 (Labour Economics)
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- Colombino, Ugo, 2011.
"Five Issues in the Design of Income Support Mechanisms: The Case of Italy,"
IZA Discussion Papers
6059, Institute for the Study of Labor (IZA).
- Ugo Colombino, 2011. "Five issues in the design of income support mechanisms. The case of Italy," CHILD Working Papers wp21_11, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY.
- repec:ese:emodwp:em5-12 is not listed on IDEAS
- Colombino Ugo, 2011.
"Designing a universal income support mechanism for Italy.An exploratory tour,"
Department of Economics and Statistics Cognetti de Martiis. Working Papers
201112, University of Turin.
- Colombino Ugo & Narazani Edlira, 2013. "Designing a Universal Income Support Mechanism for Italy: An Exploratory Tour," Basic Income Studies, De Gruyter, vol. 8(1), pages 1-17, July.
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