Exploring the Importance of Behavioural Endogeneity for Policy Projections

Behavioural endogeneity is appealing functionality for any analytical tool designed to explore the implications of public policy alternatives. This study improves the evidence base for choosing between alternative approaches for projecting decision making by exploring two key research questions: (i) how important are the impact effects of policy change, relative to associated incentive effects; and (ii) to what extent can the over-all infuence of behavioural responses to policy change be approximated by labour supply responses alone? Results obtained highlight the importance of selecting an analytical tool that is tailored to the subject of interest, and provide support for the view that best-practice evaluation of policy counterfactuals should consider the sensitivity of key results to alternative analytical approaches.