Micro-simulation and Normative Policy Evaluation: An Application to Some EU Tax Benefits Systems

In this work we explore the impact of alternative tax benefits systems on household welfare. The framework of our analysis is the theory of optimal taxation with the distribution of potential wages replaced by the distribution of household abilities. The latter has been calculated by inversion of the household's utility maximization problem. This methodology has then been implemented in order to compare the tax benefits systems of France and the United Kingdom. We have employed a behavioral micro-simulation model that has been applied on samples extracted from the "Households Budget Survey 1989" of INSEE and from the "Family Expenditure Survey" of ONS. Copyright 2005 Blackwell Publishing Inc..