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PSLmodels / Behavioral-Responses

PSL module that estimates partial-equilibrium behavioral responses to tax changes simulated by Tax-Calculator
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Simulate extensive margin #54

Open MaxGhenis opened 5 years ago

MaxGhenis commented 5 years ago

behresp currently simulates income changes on the intensive margin only,* i.e. changing the hours worked or wage to vary income conditional on employment.

Could it also model the extensive margin, i.e. decisions to enter or exit the labor force?

Chetty et al (2011) includes a meta-analysis of micro evidence estimating that steady-state substitution elasticities are roughly split between intensive and extensive. The extensive margin is particularly important for women.

Exit would be simpler to model than entry, since the latter involves imputing a new income level for people currently. This could be done by modeling the conditional distribution of people with income, or alternatively by shuffling weights between filing units with income vs. those without.

* The response function documentation cites two papers: Gruber and Saez (2002) does not mention intensive/extensive margins, and a scan of Feldstein and Feenberg (1995) discusses participation but I'm not sure if it models it specifically.

MattHJensen commented 5 years ago

@MaxGhenis, thanks for raising this discussion of the extensive margin.

I would be pleased to review a PR that adds enhances Behavioral-Responses to estimate extensive margin effects. I'm adding a help wanted label here for now.