Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/180580 
Year of Publication: 
2018
Series/Report no.: 
IZA Discussion Papers No. 11562
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
The purpose of the paper is to provide a discussion of the various approaches for accounting for labour supply responses in microsimulation models. The paper focuses attention on two methodologies for modelling labour supply: the discrete choice model and the random utility – random opportunities model. The paper then describes approaches to utilising these models for policy simulation in terms of producing and interpreting simulation outcomes, outlining an extensive literature of policy analyses utilising these approach. Labour supply models are not only central for analyzing behavioural labour supply responses but also for identifying optimal tax-benefit systems, given some of the challenges of the theoretical approach. Combining labour supply results with individual and social welfare functions enables the social evaluation of policy simulations. Combining welfare functions and labour supply functions, the paper discusses how to model socially optimal income taxation.
Subjects: 
behavioural microsimulation
labour supply
discrete choice
tax reforms
JEL: 
C50
D10
D31
H21
H24
H31
J20
Document Type: 
Working Paper

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