Analyzing Tax Policy Changes Using a Stochastic OLG Model with Heterogeneous Households: Technical Paper 2003-12

Working Paper
December 1, 2003

Shinichi Nishiyama

This paper describes a stochastic overlapping generations (OLG) model with heterogeneous agents, which is one of five models used at the Congressional Budget Office for recent fiscal policy analyses. In this model economy, households are heterogeneous with respect to their age, wealth holding, working ability, and working history, and households face individual shocks to their ability to earn income every year. The paper also explains the choice of parameters, the characteristics of the baseline economy, and the features of the model through policy experiments under several different assumptions. The solution algorithm is also shown in the Appendix.