The Discussion Papers series presents results from ongoing research projects and other research and analysis by SSB staff, intended for international journals or books. The views and conclusions in this document are those of the author(s).
Using elasticity estimates from the literature, the proposed external evidence procedure offers a flexible and transparent tool for incorporating behavioral effects into microsimulation. We distinguish between responses in income both at the intensive and extensive margins. The framework is implemented within the Norwegian LOTTE microsimulation system and illustrated through two policy reforms: (i) a five percentage-point increase in the two top brackets of the labor income tax and (ii) the introduction of a work-related income deduction. Empirical results show that behavioral adjustments substantially offset mechanical revenue effects for high-income tax increases, while the work deduction generates positive participation responses but amplifies revenue losses due to phase-out effects.