The aim of this paper is to introduce labour supply behaviour in an arithmetic microsimulation model so as to take into account changes in labour supply when a new policy is evaluated. I explore the performance of a labour supply estimation method based on a discrete choice set. The idea behind this approach is to work directly with preferences instead of labour supply functions. The main advantage of the discrete approach is the possibility of dealing easily with non-convex budget sets and joint labour supply. This let the discrete approach relatively suitable for policy evaluation purposes. I use the papers from Blundell, Dancan, McCrae and Meghir (1999) and Brewer, Duncan Shepard and Suarez (2006) as main references for the structural microeconometric model. Several innovative elements are taken into account with respect previous Italian studies. In particular, I allow for errors in the predicted wage for non-workers, unobserved heterogeneity in preferences, unobserved monetary fixed costs of working and child-care demand. The model is fully parametric and the Simulated Maximum Likelihood approach is used to approximate multidimensional integrals. An overview of the STATA routine for the maximum likelihood estimation is also presented. The elasticities of labour supply for married men and women are computed and discussed.
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number
14198.
Find related papers by JEL classification: 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 H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
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