Modelling Behavioural Response in EUROMOD
The EUROMOD Preparatory Project examined a number of aspects of the technical feasibility of constructing a Europe-wide tax-benefit model. This paper reports on the issues relating to incorporating behavioural response into the model. It explores the problems and prospects of modelling changes in behaviour within the static microsimulation approach, using cross-sectional data. In the case of labour supply it concludes that not only are there problems related to the timing of responses using the static approach, but also a lack of comparable studies (or data) across all 15 countries. A dynamic approach using panel data has more potential and should be explored for a small group of countries. In the case of consumer demand, behavioural adjustment can be assumed to be quick and there is some potential for including demand responses in EUROMOD
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