Behavioural Microsimulation with Labour Supply Responses

This paper provides a technical survey of recent developments in behavioural microsimulation. We discuss the criteria by which models of labour supply may be chosen for application to behavioural microsimulation, and consider how such models may be augmented to control for fixed costs, child–related work costs, preference heterogeneity and endogeneity in wages. We describe methods by which non–linear budget constraints may be accommodated in estimation, policy simulations and welfare analysis, and discuss how stochastic terms may be factored into the simulation of behavioural responses to a policy shock.