Modelling the Dynamic Effects of Transfer Policy: The LINDA Policy Analysis Tool

Melbourne Institute Working Paper No. 20/13

Date: June 2013

Author(s):

Paolo Lucchino
Justin van de Ven

Abstract

This paper describes a structural dynamic microsimulation model that generates individual-specific data over a range of demographic and economic characteristics at annual intervals over the life-course. The model is specifically designed to analyse the distributional implications of policy alternatives in terms of their bearing on income and consumption measured over alternative time periods, from one year up to the entire life-course. This focus on economic characteristics measured over appreciable periods of life motivates endogenous simulation of savings and labour supply decisions, taking explicit account of uncertainty regarding the evolving decision environment. Reflecting the demands of policy makers, and in contrast to the majority of the associated literature, the model described here is designed to project from data observed for a population cross-section.

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  • Dynamic programming, savings, labor supply