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Aggregating Labour Supply And Feedback Effects In Microsimulation

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  • John Creedy
  • Alan Duncan

Abstract

This paper extends behavioural microsimulation modelling so that third round effects of a policy change can be simulated. The first round effects relate to fixed hours of work, while second round effects allow for changes in desired hours of work at unchanged wages. These allow for endogenous changes to the distribution of wage rates resulting from the labour supply responses to tax changes. This is achieved using the concept of an aggregate 'supply response schedule', which identifies the extent to which average labour supply responds to a proportional change in wage rates. The third round effect is obtained after re-running a microsimulation model with a suitable modification to individuals' wage rates. The method is illustrated using the MITTS behavioural microsimulation model.

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Bibliographic Info

Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 823.

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Length: 0 pages
Date of creation: 2001
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Handle: RePEc:mlb:wpaper:823

Note: This paper has now been published in: Creedy, J. and Duncan, A. (2005) Aggregating Labour Supply and Feedback Effects in Microsimulation, Australian Journal of Labour Economics, 8, no.3, pp. 277-290.
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References

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  1. Michael P. Keane & Robert Moffitt, 1995. "A structural model of multiple welfare program participation and labor supply," Working Papers 557, Federal Reserve Bank of Minneapolis.
  2. Andrew Dilnot & Alan Duncan, 1992. "Lone mothers, family credit and paid work," Fiscal Studies, Institute for Fiscal Studies, vol. 13(1), pages 1-21, February.
  3. Heckman, James J, 1993. "What Has Been Learned about Labor Supply in the Past Twenty Years?," American Economic Review, American Economic Association, vol. 83(2), pages 116-21, May.
  4. Bergmann, Barbara R, 1990. "Micro-to-Macro Simulation: A Primer with a Labor Market Example," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 99-116, Winter.
  5. Orley Ashenfelter, 1977. "Unemployment as Disequilibrium in a Model of Aggregate Labor Supply," Working Papers 484, Princeton University, Department of Economics, Industrial Relations Section..
  6. Joseph Altonji, 1984. "Intertemporal Substitution in Labor Supply: Evidence from Micro Data," Working Papers 562, Princeton University, Department of Economics, Industrial Relations Section..
  7. Alogoskoufis, George S, 1987. "On Intertemporal Substitution and Aggregate Labor Supply," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 938-60, October.
  8. Muellbauer, John N J, 1981. "Linear Aggregation in Neoclassical Labour Supply," Review of Economic Studies, Wiley Blackwell, vol. 48(1), pages 21-36, January.
  9. Lucas, Robert E, Jr & Rapping, Leonard A, 1969. "Real Wages, Employment, and Inflation," Journal of Political Economy, University of Chicago Press, vol. 77(5), pages 721-54, Sept./Oct.
  10. Kennan, John, 1988. "An Econometric Analysis of Fluctuations in Aggregate Labor Supply and Demand," Econometrica, Econometric Society, vol. 56(2), pages 317-33, March.
  11. Creedy, John & Duncan, Alan, 2002. " Behavioural Microsimulation with Labour Supply Responses," Journal of Economic Surveys, Wiley Blackwell, vol. 16(1), pages 1-39, February.
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Cited by:
  1. Peichl, Andreas & Siegloch, Sebastian, 2012. "Accounting for labor demand effects in structural labor supply models," Labour Economics, Elsevier, vol. 19(1), pages 129-138.
  2. 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.
  3. Peichl, Andreas & Schneider, Hilmar & Siegloch, Sebastian, 2010. "Documentation IZAΨMOD: The IZA Policy SImulation MODel," IZA Discussion Papers 4865, Institute for the Study of Labor (IZA).
  4. Colombino, Ugo & Narazani, Edlira, 2012. "What's Best for Women: Gender Based Taxation, Wage Subsidies or Basic Income?," IZA Discussion Papers 6828, Institute for the Study of Labor (IZA).
  5. Ugo Colombine, 2013. "A new equilibrium simulation procedure with discrete choice models," International Journal of Microsimulation, Interational Microsimulation Association, vol. 6(3), pages 25-49.
  6. Thor O. Thoresen & Jørgen Aasness & Zhiyang Jia, 2008. "More realistic estimates of revenue changes from tax cuts," Discussion Papers 545, Research Department of Statistics Norway.
  7. John Creedy & Guyonne Kalb, 2005. "Behavioural Microsimulation Modelling for Tax Policy Analysis in Australia: Experience and Prospects," Melbourne Institute Working Paper Series wp2005n02, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  8. Tim Callan & A. Van Soest & John R. Walsh, 2007. "Tax Structure and Female Labour Market Participation: Evidence from Ireland," Papers WP208, Economic and Social Research Institute (ESRI).
  9. John Freebairn & Peter Dawkins, 2003. "Unemployment Policy: Lessons from Economic Analysis," Melbourne Institute Working Paper Series wp2003n22, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  10. 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).
  11. Colombino, Ugo & Narazani, Edlira, 2014. "Closing the Gender Gap: Gender Based Taxation, Wage Subsidies or Basic Income?," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201412, University of Turin.
  12. John Creedy & Guyonne Kalb, 2005. "Behavioural Microsimulation Modelling With the Melbourne Institute Tax and Transfer Simulator(MITTS) : Uses and Extensions," Department of Economics - Working Papers Series 932, The University of Melbourne.
  13. repec:ese:emodwp:em10-13 is not listed on IDEAS
  14. Edlira Narazani, 2011. "Evidences on Household Labour Supply when Labour Demand is not Perfectly Elastic Keywords: Labour Supply, Labour Demand, Equilibrium," CHILD Working Papers wp22_11, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY.
  15. Peter Haan & Viktor Steiner, 2004. "Distributional and Fiscal Effects of the German Tax Reform 2000: A Behavioral Microsimulation Analysis," Discussion Papers of DIW Berlin 419, DIW Berlin, German Institute for Economic Research.
  16. Thor O. Thoresen & Zhiyang Jia & Peter J. Lambert, 2013. "Distributional benchmarking in tax policy evaluations," Discussion Papers 765, Research Department of Statistics Norway.
  17. Colombino Ugo, 2012. "Equilibrium simulation with microeconometric models. A new procedure with an application to income support policies," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201209, University of Turin.
  18. repec:ese:emodwp:em5-12 is not listed on IDEAS

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