Modelling Private Wealth Accumulation and Spend Down in the Italian Microsimulation Model CAPP_DYN: A Life-Cycle Approach

In microsimulation literature a limited number of models include a module aimed at analyzing and projecting the evolution of privat e wealth over time. However, this issue appears crucial in order to comprehensively evaluate the li kely distributional effects of institutional reforms adopted to cope with population ageing. In this work we describe the implementation in the Italian dynamic micro simulation model CAPP_DYN of a new module in which households’ savings and asset allocation are modelled. In parti cular, we aim to account for possible behavioural responses to pension reforms in househo ld savings. To this end, we rely on an approximate life cycle structural framework for est imating saving behaviour, while adopting a traditional stochastic micro simulation approach fo r asset allocation. In line with Ando and Nicoletti Altimari (2004), we emphasize the role of lifetime economic resources in households’ consumption decisions, yet we further account for i nternal habit formation and subjective expectations on pension outcomes in the econometric stage. In addition, we model intergenerational transfers of private wealth in a probabilistic fashion