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CAPITA-B: A Behavioural Microsimulation Model

Staff research note

This note by Daniel Marshall was released on 19 February 2016. It describes a modelling platform (CAPITA-B) that provides the generic functions of a behavioural microsimulation model while keeping to a minimum details that would be required to model a particular policy application. This makes it easier to extend CAPITA-B to answer future policy questions.

This document describes CAPITA-B by:

  • focusing on design considerations that influenced CAPITA-B's development
  • discussing the behavioural module's theory and implementation (implementation is illustrated using a hypothetical policy experiment)
  • identifying aspects of CAPITA-B that should be revised when developing an application-specific model.

The views expressed in this research note are those of the staff involved and do not necessarily reflect the views of the Productivity Commission.

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  • Key points
  • CAPITA-B is a behavioural microsimulation module that relies on and extends CAPITA (a static microsimulation model of the Australian Tax and Transfer system provided by the Australian Treasury).
    • CAPITA-B extends CAPITA-By estimating changes to individual and aggregate labour supply caused by changes to Australia's tax and transfer policy environment.
  • The design underlying CAPITA-B was selected from a range of alternatives because it allows for easily interaction with the existing CAPITA framework and had low development costs.
    • CAPITA-B was not developed for a particular application. Instead, CAPITA-B was developed as a modelling 'platform' to provide the foundation to build models designed to address specific policy questions.
    • The initial implementation of CAPITA-B is simple so that it can be easily understood and modified. For instance, in this implementation, CAPITA-B assumes that:
      • each family has a single decision maker
      • that the single decision maker is the primary earner.
    • The initial implementation includes temporary specifications for details considered to be application specific. For instance, equations underlying wage and utility calculations are based on those used in previous Commission modelling for the Childcare and Early Childhood Learning inquiry (PC 2014).
  • Applying the CAPITA-B modelling platform to a particular application requires further work to:
    • modify aspects of CAPITA (by including more policies and modifying rules relating to transfer payment eligibility for instance)
    • depending on the application, specify:
      • the number of decision makers per income unit
      • who these decision makers should be.
    • update the temporary specifications of some of the module's details, such as the equations used in the utility and wage calculations.
  • CAPITA-B calculates people's labour supply choices after policy change and aggregates these choices into changes in aggregate labour supply, relative to a baseline.
    • Aggregate results should be interpreted as labour supply changes and not changes to equilibrium employment (which depends on interactions with labour demand that are not reflected in CAPITA-B).
    • Similarly, budgetary effects calculated with CAPITA-B do not relate to equilibrium employment outcomes.

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