Behavioural Microsimulation (MITTS)

In 1997, the Melbourne Institute started to develop plans for a behavioural microsimulation model, the Melbourne Institute Tax and Transfer Simulator (MITTS), assembling a team to work on the realisation of the plans. In 1998, John Creedy and Alan Duncan commenced work on the development of MITTS funded by the Institute and supported by research grants from the Faculty of Economics and Commerce at Melbourne University and funding from the Department of Family and Community Services. The model is joint intellectual property of the Melbourne Institute and the Department of Family and Community Services.

A manual (pdf 629kb) is available describing the different components and menus of MITTS.

Behavioural microsimulation policy modelling is an increasingly important strand of economic research on social security issues. It is important to distinguish this from non-behavioural or what is sometimes called "static" microsimulation modelling, of the type undertaken in Australia for example by NATSEM, using STINMOD. Behavioural microsimulation modelling incorporates behavioural responses, especially labour supply behavioural responses, to the incentive structure imposed by the social security system.

MITTS can be used to explore the effects on government expenditure of previous or proposed policy changes affecting the tax and/or social security system in Australia. Expenditure changes can be predicted using MITTS with and without taking into account the potential labour supply changes resulting from a policy reform. The predicted labour supply changes are based on the estimated parameters of an Australian labour supply model (see Working Paper No. 24/02 (pdf 1.1mb)) and a wage model (see Working Paper No. 8/02 (pdf 1.5mb)).

MITTS contains detailed information on tax and social security systems between early 1995 and 2008. Each of these systems can be used as the base system for policy changes. Simulations use weighted samples of the Survey of Income and Housing Cost from 1994/1995 through to 2005/2006 (the most recent unit record file that is available).

A range of policy simulation projects using MITTS have been undertaken by the Melbourne Institute, a large number of which have resulted in a range of publications. Examples of simple policy simulations are available in two working papers, one on a taper rate reduction (pdf 1.4mb) and one on changes to family payment taper rates (pdf 1.3mb).

Several of the Melbourne Institute projects continue to further develop and extend MITTS, results of which are reported in various technical papers.

For more information on MITTS please contact Dr Nicolas Hérault.