Behavioural Microsimulation Modelling With the Melbourne Institute Tax and Transfer Simulator(MITTS) : Uses and Extensions

Abstract

This paper describes microsimulation modelling in non-technical terms; and it explains what can be achieved with microsimulation modelling in general, and the Melbourne Institute Tax and Transfer Simulator (MITTS) in particular. The focus is on behavioural microsimulation modelling, which takes individuals’ labour supply responses into account when analysing tax and transfer reforms. Microsimulation models are built to replicate closely the considerable degree of heterogeneity observed in the population. Several examples of recent uses of MITTS are given and briefly described. In addition, one worked-out example is presented to illustrate some of the features and typical outputs of MITTS. Given the relatively recent development of behavioural microsimulation models, there are several opportunities for further extensions. For example, it would be valuable to allow for the demand side of labour, indicating whether new labour force participants are likely to find work; or to allow for life-cycle dynamics, which are important to deal with population-ageing issues or with female labour force participation.