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

Author

Listed:
  • Justin van de Ven

    (National Institute of Economic and Social Research, London; Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

  • Paolo Lucchino

    (National Institute of Economic and Social Research, London)

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.

Suggested Citation

  • Justin van de Ven & Paolo Lucchino, 2013. "Modelling the Dynamic Effects of Transfer Policy: The LINDA Policy Analysis Tool," Melbourne Institute Working Paper Series wp2013n20, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    • Handle: RePEc:iae:iaewps:wp2013n20
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    File URL: http://melbourneinstitute.unimelb.edu.au/downloads/working_paper_series/wp2013n20.pdf
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    References listed on IDEAS

    as
    1. Gustman, Alan L & Steinmeier, Thomas L, 1986. "A Structural Retirement Model," Econometrica, Econometric Society, vol. 54(3), pages 555-584, May.
    2. James J. Choi & David Laibson & Brigitte C. Madrian & Andrew Metrick, 2003. "Optimal Defaults," American Economic Review, American Economic Association, vol. 93(2), pages 180-185, May.
    3. Balcer, Yves & Sadka, Efraim, 1986. "Equivalence scales, horizontal equity and optimal taxation under utilitarianism," Journal of Public Economics, Elsevier, vol. 29(1), pages 79-97, February.
    4. Igor Livshits & James MacGee & Michèle Tertilt, 2007. "Consumer Bankruptcy: A Fresh Start," American Economic Review, American Economic Association, vol. 97(1), pages 402-418, March.
    5. Paolo Lucchino & Dr Justin van de Ven, 2013. "Modelling the dynamic effects of transfer policy: the LINDA policy analysis tool," National Institute of Economic and Social Research (NIESR) Discussion Papers 405, National Institute of Economic and Social Research.
    6. Stephen P. Zeldes, 1989. "Optimal Consumption with Stochastic Income: Deviations from Certainty Equivalence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(2), pages 275-298.
    7. Hubbard, R Glenn & Skinner, Jonathan & Zeldes, Stephen P, 1995. "Precautionary Saving and Social Insurance," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 360-399, April.
    8. Diamond, Peter & Koszegi, Botond, 2003. "Quasi-hyperbolic discounting and retirement," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 1839-1872, September.
    9. Nagatani, Keizo, 1972. "Life Cycle Saving: Theory and Fact," American Economic Review, American Economic Association, vol. 62(3), pages 344-353, June.
    10. Gabriel D. Carroll & James J. Choi & David Laibson & Brigitte C. Madrian & Andrew Metrick, 2009. "Optimal Defaults and Active Decisions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(4), pages 1639-1674.
    11. Gustman, Alan L. & Steinmeier, Thomas L., 2005. "The social security early entitlement age in a structural model of retirement and wealth," Journal of Public Economics, Elsevier, vol. 89(2-3), pages 441-463, February.
    12. Andreoni, James, 1989. "Giving with Impure Altruism: Applications to Charity and Ricardian Equivalence," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1447-1458, December.
    13. repec:sae:niesru:v:188:y::i:1:p:56-72 is not listed on IDEAS
    14. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762, November.
    15. James Sefton & Justin vandeVen & Martin Weale, 2008. "Means Testing Retirement Benefits: fostering equity or discouraging savings?," Economic Journal, Royal Economic Society, vol. 118(528), pages 556-590, April.
    16. David Laibson, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(2), pages 443-478.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Justin van de Ven & Paolo Lucchino, 2013. "Empirical Analysis of Household Savings Decisions in Context of Uncertainty: A Cross-Sectional Approach," Melbourne Institute Working Paper Series wp2013n21, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.

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    More about this item

    Keywords

    Dynamic programming; savings; labor supply;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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