AGGREGATING LABOUR SUPPLY AND FEEDBACKEFFECTS IN MICROSIMULATION

This paper extends behavioural microsimulation modelling so that third round effectsof a policy change can be simulated. The first round effects relate to fixed hoursof work, while second round effects allow for changes in desired hours of work atunchanged wages. These allow for endogenous changes to the distribution of wagerates resulting from the labour supply responses to tax changes. This is achievedusing the concept of an aggregate ‘supply response schedule’, which identifies theextent to which average labour supply responds to a proportional change in wagerates...