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Title:Equilibrium simulation with microeconometric models: A new procedure with an application to income support policies PDF Logo
Authors:Colombino, Ugo
Issue Date:2012
Series/Report no.:Discussion Paper series, Forschungsinstitut zur Zukunft der Arbeit 6679
Abstract:Many 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. part-time 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 statics 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. Since the constants reflect the number of jobs and since the number of people willing to work changes as a response to the change in tax-transfer regime, the new equilibrium induced by the reform implies 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 statics interpretation. The procedure is illustrated with a simulation of alternative reforms of the income support policies in Italy.
Subjects:random utility
discrete choice
labour supply
policy simulation
alternativespecific constants
equilibrium simulation
JEL:C35
C53
H31
J22
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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