ABSTRACT
In this chapter, the authors describe the microsimulation model is illustrated, which algebraically describes the household labour supply model used to consider behavioural response. They also describe the data used, as well as the most important German tax-transfer regulations. The authors refer to the general equilibrium modelling. A general overview is followed by the presentation of the general equilibrium model PACE-L. The linkage of the microsimulation model STSM to the general equilibrium model PACE-L is given. Microsimulation models, in particular tax-benefit microsimulation models, use a detailed representation of a tax system to simulate policy reforms. Structurally, microsimulation models are based on micro-data with detailed information on socio-demographic variables, incomes, taxes, benefits and working time of households and individuals. The ZEW microsimulation model calculates the disposable household income, as well as the taxes and benefits. The authors illustrate the development of the most up-to-date microsimulation computerized general equilibrium (CGE) model in Germany, which defines the new state of the art in modelling policy analysis.
