Abstract
In this note, I review the history of CGE-Microsimulation modeling, and the main methodological issues involved.
Highlights
Simulation models are tools which are designed to answer “what if” questions about different policy reform options
Simulation models provide a powerful tool for the ex-ante evaluation of policy reform proposals
Combining MS and macro models enables the utilization of the complementary advantages of both types and provides a fruitful avenue for future work
Summary
Simulation models are tools which are designed to answer “what if” questions about different policy reform options. Simulation models can provide information for an ex-ante analysis of different reform proposals. Policy simulations can be interpreted as quasi-experiments which allow the economist to ex-ante analyze a reform proposal before its implementation in real life controlling for behavioral responses of different agents in the economy. MS models usually consider only the household side of the economy, which allows for more heterogeneity and a much more detailed mapping of the complex tax benefit system. Combining these two model types enables the utilization of the complementary advantages. The aim of this note is to discuss possibilities (and problems) of linking MS and CGE models.
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