Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/336505 
Year of Publication: 
2026
Series/Report no.: 
Discussion Papers No. 1034
Publisher: 
Statistics Norway, Research Department, Oslo
Abstract: 
When structural labor supply models are unavailable or impractical, the paper proposes a practical method for incorporating behavioral responses into static taxbenefit microsimulation models. Using elasticity estimates from the literature, the proposed external evidence procedure offers a flexible and transparent tool for incorporating behavioral effects into microsimulation. We distinguish between responses in income both at the intensive and extensive margins. The framework is implemented within the Norwegian LOTTE microsimulation system and illustrated through two policy reforms: (i) a five percentage-point increase in the two top brackets of the labor income tax and (ii) the introduction of a work-related income deduction. Empirical results show that behavioral adjustments substantially offset mechanical revenue effects for high-income tax increases, while the work deduction generates positive participation responses but amplifies revenue losses due to phase-out effects.
Subjects: 
microsimulation
tax-benefit model
behavioral response
quasi-experimental evidence
JEL: 
C53
H24
H31
Document Type: 
Working Paper

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