Microsimulation and analysis of income distribution

The first chapters of the book put special emphasis on tax-benefit microsimulation models, reviewing and discussing the state of the art in the economic literature of tax-benefit microsimulation models. Particular attention is paid to issues such as the reliability of tax-benefit estimation and the grossing-up of the sample used. In order to analyse tax-benefit microsimulation, a new model is developed focusing on the case of Italy, which, appropriately calibrated to population totals, is also used for an estimation of tax evasion. Non-parametric density estimation is used to improve the understanding of policy simulations and to analyse the effect of fiscal reforms. The book analyses also how microsimulation models can be useful in understanding the causes of inequality trends. Finally, the issue of inference with thick-tailed distributions, which are frequently found in empirical analysis of income distribution, is discussed. It is shown that inference based on the standard t-ratio statistic can induce a non negligible error in the rejection probability and some solutions are suggested.