Strategy, Meet Policy; Policy, Meet Strategy:

Transcript:Strategy, Meet Policy; Policy, Meet Strategy::
Strategy, Meet Policy; Policy, Meet Strategy: Marvin Avery & Richard J. Morrison The Ruthen Team International Microsimulation Association On-line December 1 – 3, 2021 2 Presentation Overview Importance of incentives Contributions of traditional longitudinal dynamic microsimulation modeling Ruthen, software for financial planning, and policy analysis Using Ruthen-2 for policy applications Ruthen-3: Extensions and relevance for policy analysis – why you’d want to use it Incentives: Perverse Results When Programs Don’t Play Well Together Welfare traps – not worth working Marriage penalties – better off not marrying, or even divorcing if married Black and gray labour markets, and crime as a career choice Encouraging early retirement Discouraging saving 3 Traditional Longitudinal Dynamic Microsimulation 4 Many models, many foci, regular feature of conferences since IMA’s inception Increasing proficiency in capturing demographics, pensions, tax/transfer systems, wealth, and behavioral effects Address aggregate impacts, adequacy, sustainability Sub-population breakouts, winners/losers analyses, identification of extreme cases Traditional Models Face Challenges Regarding Incentives Data limitations wrt assets, saving & dissaving, and personal preferences Complexity of asset & debt portfolios Voluntary saving and DC pensions Decumulation, and drawdowns during working/accumulation phase End of life expenses, estate disposition 5 Ruthen – What It Is Microsimulation package for consequences of financial strategies Purpose-built language for financial planning objects and actions Ruthen program executes models written in the Ruthen language Includes risks, realistic tax/benefits Emphasis on flexible outputs 6 Ruthen-2 – How It Works A model describes subject, tax/transfer system, risks, financial instruments, e.g., assets & incomes, and financial strategy Independent execution of model and strategy many times, e.g., a million Flexible accumulators record results Variety of output formats for standard and customized consequences 7 Ruthen-2 – Major Features Systems perspective necessary – can’t get realistic, meaningful results without it Meaningful measures, e.g., transactions, net worth, & consumption Supports paired “apples to apples” comparisons for twinned units Generalizability through parameterized language objects and functions 8 Ruthen-2 – Financial Planning Applications: 9 Accumulation and decumulation strategies Stress tests on planning assumptions End of life costs and after-tax estates Risk-sharing financial instruments, e.g., tontines Changes in standard of living upon survivorship or divorce Ruthen-2 Policy Applications - 1 10 Ruthen as a complement to, not substitute for, traditional longitudinal dynamic models Individual, and government, internal rates of return on private, voluntary saving Individual, and government, internal rates of return on mandatory public pensions Consumption impacts of early and delayed take-up of public retirement pensions