Microsimulation as a tool for evaluating redistribution policies

During the last 20 years, microsimulation models have been increasingly applied in qualitative and quantitative analysis of public policies. This paper discusses microsimulation techniques and their theoretical background as a tool for the analysis of public policies. It next analyses basic principles for using microsimulation models and interpreting their results, with emphasis on tax incidence, redistribution and poverty analysis. It then discusses social welfare analysis permitted by microsimulation techniques and points to the limits of present approaches and some directions for future developments.