Direct Taxation and Behavioural Microsimulation: A Review of Applications in Italy and Norway

In this contribution we illustrate various applications of a behavioural microsimulation model that we have been developing during the last years. Behavioural models are complex and costly tools to develop, use and maintain, but also very powerful ones as we wish to show through the examples that follow. In Section 1 we present the main features of the microeconometric model. In Section 2 we comment upon the labour supply elasticities implied by the estimates. In Section 3 we illustrate a simulation of the behavioural and welfare effects of some tax reform proposals. In Section 4 we report on an exercise where we look for the optimal tax system. In Section 5 we report on an on-going project aimed at integrating the microeconometric model and a Computable General Equilibrium model. Last, in Section 6, we show an out-of-sample test of the model, where we compare the predictions of a model estimated on 1994 data to the observed effects of a reform in 2001.