Calibrating OG-Core

The OG-Core model represents all the general model solution code for any overlapping generations model of a country or region. Although OG-Core has a default_parameters.json file that allows it to run independently, the preferred method for using OG-Core is as a dependency to a country calibration repository. We recommend that another repository is made, such as OG-USA or OG-ZAF that uses OG-Core as its main computational foundation and engine and calibrates country-specific variables and functions in its own respective source code. This approach results in a working overlapping generations model consisting of a country-specific calibration repository plus a dependency on the general OG-Core model logic and options.

Table 5 is a list of country-specific calibrations of overlapping generations models that use OG-Core as a dependency from oldest to newest. Note that these models are in varying stages of completeness and maturity. It is true that a model is never really fully calibrated. The model maintainer is always updating calibrated values as new data become available. And the model maintainer can always search for better fit and better targeting strategies. As such, the only measures of model maturity of the country calibrations below is the date the repository was created.

Table 5 Country-specific calibrated OG models based on OG-Core.

Country	Model name	GitHub repo	Documentation	Date created
United States	OG-USA	PSLmodels/OG-USA	https://pslmodels.github.io/OG-USA	May 25, 2014
United Kingdom	OG-UK	PSLmodels/OG-UK	https://pslmodels.github.io/OG-UK	Feb. 14, 2021
India	OG-IND	Revenue-Academy/OG-IND	https://revenue-academy.github.io/OG-IND	Jul. 17, 2022
Malaysia	OG-MYS	Revenue-Academy/OG-MYS		Jul. 17, 2022
South Africa	OG-ZAF	EAPD-DRB/OG-ZAF	https://eapd-drb.github.io/OG-ZAF	Oct. 9, 2022

In the following section, we detail a list of items to calibrate for a country and what types of data and approaches might be available for those calibrations. Each of the country-specific models listed in Table 5 will have varying degrees of calibration maturity and further varying degrees of documentation of their calibration. But the following section details all the areas where each of these models should be calibrated.

Detail of parameters, data, and approaches for calibration

Table 6 shows the data and calibration strategies for each parameter and parameter area of the model.

Table 6 Areas, parameters, and data strategies for calibrating country- or region-specific OG model based on OG-Core.

General item description	Specific item description	Data source
Demographics	Using UN population data	Access to country demographics in UN Population Data Portal
Demographics	Other data source	Custom interface between OG model and other data source. Data source must have the number of people by age, fertility rates by age, mortality rates by age (age bins are suitable and interpolation can be used).
Macroeconomic parameters	Capital share of income, private/sovereign interest rate spread, long-run growth rate, debt-to-GDP ratios, transfer spending to GDP, government spending on goods and services to GDP, foreign purchases of government debt	Capital and Labor cost data by industry. Average private borrowing rate/corporate bond yields, GDP time series, publicly held government debt time series, government transfer program spending, government spending (total non-transfer and infrastructure spending separately)
Lifetime income profiles	Approximate US profiles rescaled by Gini coefficient	Gini coefficient for the country
Lifetime income profiles	Estimate from micro data	Individual panel data with earnings (wage, salaries, self-employment income before taxes), labor hours, and age (can impute labor hours if necessary)
Labor supply elasticities	Constant	Use existing estimates from the research literature. Or cross sectional or panel data with hours and wages.
Labor supply elasticities	Age varying	Use existing estimates from the research literature. Or cross sectional or panel data with hours and wages and age.
Bequest motive	Bequest motive	Data on bequests given and/or bequests received similar to the US Survey of Consumer Finances. Other forms of information could allow us to rescale the US bequest distribution to match some moment from the target country.
Rate of time preference	Constant	Research empirical literature
Rate of time preference	Heterogeneous (match to MPCs and wealth distribution)	Data on country marginal propensity to consume (e.g., US Consumer Expenditure Survey or PSID) and data on the distribution of wealth in the country
Composite consumption share parameters	Stone-Geary sub-utility function	Consumption by category data within the country (e.g., similar to the US Consumer Expenditure Survey)
Hand-to-mouth consumers	Calibrated separately from savers	Cross-sectional or panel data with measures of income, wealth, consumption
Link PIT microsimulation model, produces effective tax rates and marginal tax rates by total income (even better is has both labor income and capital income breakdown)	PIT model has Python API	Microsimulation model with Python API
Link PIT microsimulation model, produces effective tax rates and marginal tax rates by total income (even better is has both labor income and capital income breakdown)	PIT model has command line interface	Microsimulation model that can be executed from a terminal command line
Link PIT microsimulation model, produces effective tax rates and marginal tax rates by total income (even better is has both labor income and capital income breakdown)	PIT model has another way to interact with it	Microsimulation model is in another program like Excel that can be run with an executable or with other software
Consumption tax rates	Single rate	Average consumption tax rates (e.g., time series with total revenue from consumption taxes and time series on GDP/national income)
Consumption tax rates	Product-specific rates	Consumption tax rates by product or industry category
Public Pension system (exogenous retirement age)	If one of [notional defined contribution, defined benefits, points system, US Social Security]	Pension rules based on age, payout, retirement rules, spouse benefits
Public Pension system (exogenous retirement age)	If pension system not mentioned above	Pension rules based on age, payout, retirement rules, spouse benefits
Production functions by industry	More than one industry	Time series of capital and labor demand by industry, output by industry
Calibrate METRs, capital cost recovery by industry with Cost of Capital Calculator	Gather data on cost recovery policies and business tax system by country	Tax code treatment of business income, depreciation
Calibrate METRs, capital cost recovery by industry with Cost of Capital Calculator	Gather data on value of different types of assets by industry	Time series or recent snapshot of investment or asset holdings by asset type, tax treatment (e.g., corporation, partnership), and industry
Calibrate METRs, capital cost recovery by industry with Cost of Capital Calculator	Link Cost-of-Capital-Calculator to OG macro model	No additional data requirements
Infrastructure	As share of gov’t spending and as share of firm production	Current government infrastructure spending data plus time series of capital and labor demand by industry, output by industry

Footnotes