PolicyEngine Macro
model 05 — overlapping generations · psl-og · UK · local
Model long-run behavioural change.
Estimate how reforms affect work, saving, investment, and public finances over decades, for the UK.
Two UK overlapping-generations models, side by side.
This page compares OG-UK — the UK calibration of OG-Core, maintained by the Policy Simulation Library — with the OBR UK OLG model described in OBR Working Paper No. 22 (Brzezinski, Hantzsche & Watson, April 2025) — the closest available external check for a model of this kind.
| Dimension | OG-UK strength | OBR UK OLG strength |
|---|---|---|
| Transition dynamics | Full year-by-year paths | Steady-state only |
| UK institutional detail | Smooth approximations | Explicit bands and rates |
| Within-cohort inequality | Permanent types | Stochastic earnings |
| Production structure | Multi-sector CES | Single-sector Cobb-Douglas |
| Tax instruments | 5 instruments | 3 instruments (more detailed) |
| Fiscal policy levers | G, TR, UBI, Ig | RBI, age-dependent transfers |
| Openness | Open-source, Python | MATLAB, closed toolkit |
Production technology.
How each model represents firms.
| OG-UK | OBR UK OLG | |
|---|---|---|
| Production function | CES (nests Cobb-Douglas as special case) | Cobb-Douglas only |
| Industries | M industries (multi-sector) | Single sector |
| Public capital | Yes — generates rents to private capital | No |
| Capital share | Configurable per industry | α = 0.33 |
| Labour input | Efficiency-weighted across permanent types | Efficiency-weighted by age + stochastic shocks |
| TFP | Varies by industry and over time | Normalised to 1, with labour-augmenting growth g = 1.2% |
| Depreciation | Configurable per industry | δ = 5% |
Household heterogeneity.
How households differ within each cohort — the deepest structural difference between the two models.
| OG-UK | OBR UK OLG | |
|---|---|---|
| Within-cohort variation | J permanent ability types (deterministic) | Stochastic earnings shocks (AR(1) persistent + i.i.d. transitory) |
| Income inequality driver | Fixed type assignment at birth | Random shocks each period (ρz = 0.9, σz = 0.05, σe = 0.7) |
| Precautionary savings | Not a primary channel | Yes — driven by earnings uncertainty |
| Utility function | CRRA on consumption; elliptical labour disutility | Cobb-Douglas over consumption and leisure (non-separable) |
| Labour disutility | Elliptical function — always interior solutions | Implicit in Cobb-Douglas composite — corner solutions possible |
| Risk aversion parameter | σ on consumption only | σ₂ = 2 on consumption-leisure composite |
| Consumption aggregation | Stone-Geary Cobb-Douglas (subsistence levels, I goods) | Single consumption good |
| Discount factor | βj varies by ability type | β = 0.99 (uniform) |
Bequest motive.
How each model handles wealth transfer across generations at death.
| OG-UK | OBR UK OLG | |
|---|---|---|
| Motive | "Warm glow" weighted by mortality probability ρs | "Warm glow" with target level, kicks in at age j* = 91 |
| Varies by type | Yes — χbj calibrated per ability type | Uniform (φ₁ = 10, φ₂ = 4.55) |
| Distribution | To surviving households | Equal distribution to ages 55–75 |
Tax system.
How each model represents the UK tax system.
Government & fiscal policy.
The fiscal closure rule — which item adjusts to keep debt sustainable — determines who bears the long-run burden of any reform.
| OG-UK | OBR UK OLG | |
|---|---|---|
| Budget constraint | Revenue + new debt = debt service + G + Ig + pensions + TR + UBI | Revenue = welfare transfers + RBI + debt service (growth-adjusted) |
| Fiscal closure rule | Configurable: adjust G, TR, or combination after period TG1 | Residual Budgetary Item (RBI) adjusts to stabilise debt/GDP at 100% |
| Debt target | Configurable | Fixed at 100% of GDP |
| Public investment | Explicit (Ig contributes to public capital stock) | Not modelled as productive |
| Welfare transfers | Lump-sum TR | Age-dependent transfers (γj scaling) calibrated to OBR welfare spending projections |
| State pension | Part of transfers | Explicitly modelled as age-dependent welfare transfer from state pension age onwards |
| Spending categories | G (public goods) + Ig (infrastructure) + pensions + TR + UBI | Welfare transfers + residual non-interest spending (G⁰) |
Open economy.
How foreign capital enters each model, and where the interest rate comes from.
| OG-UK | OBR UK OLG | |
|---|---|---|
| Approach | Parameterised capital mobility (ζK for capital, ζD for debt) | Binary switch: fully open (r = 5% exogenous) or fully closed (r endogenous) |
| Foreign capital | Continuous degree of openness | Either all or nothing |
| Net foreign assets | Derived from capital mobility parameters | NFA residually determined in open economy |
| Interest rate | Endogenous (influenced by openness parameters) | Either fixed at 5% (open) or MPK − δ (closed) |
Solution method & calibration.
Both are rational-expectations dynamic general equilibrium; they solve different problems.
Calibration differs mainly in data sources and anchors.
Source: OBR Working Paper No. 22, "A new UK overlapping generations model" (April 2025); OG-Core documentation and OG-UK calibration code.
No ground truth. Calibration targets instead.
| Quantity | Official UK value | Source | Model treatment | Deviation |
|---|---|---|---|---|
| Government debt-to-GDP | 95.1% (May 2026); OBR March 2026 forecast 94.4% | ONS public sector finances | imposed via closure target | −0.1pp vs latest ONS (target 95.0%) |
| Household saving ratio | 8.9% (2026Q1, down from 9.6%) | ONS quarterly sector accounts | targeted through β | 0 by construction |
| Potential growth | ≈1.1% / yr | OBR EFO | imposed, gy = 0.011 | ≈0 |
| Depreciation / capital | ≈6–7% (CFC / net stock) | ONS capital stocks bulletin | imposed, δ = 0.065 | within range |
| Labour share of income | ≈0.59–0.60, rising in 2024 | ONS labour-share series / Blue Book 2025 | imposed, γ = 0.35 (OG-Core default) | ≈5pp — the capital share is not yet re-anchored to ONS factor shares |
| Net capital stock | £5.6tn (2024) whole-economy net stock; the model's K maps to the narrower business-capital concept | ONS capital stocks bulletin | emergent — checked, not imposed | concept-adjusted; no published reconciliation |
A zero deviation on an imposed quantity is not independent evidence.
The nearest external benchmark is OBR Working Paper 22, Table 5.1 — the long-run effect of a 1pp basic-rate rise: GDP/person −0.1%, labour supply −0.2%, productivity +0.1%. The OG-UK side of that comparison is open validation work: WP 22's figures are the target a future run will be judged against, not a match claimed today.
What would count as over-identifying evidence, and the dating and structural caveats
The genuinely over-identifying checks are the ones the steady state must deliver: the capital–output ratio and the interest rate consistent with the calibrated (γ, δ, β) triple. These emerge in an economically sensible range in the deployed configuration, but no systematic published reconciliation of achieved-versus-target moments exists for OG-UK 0.3.2, and the working paper declines to manufacture one. Producing that reconciliation from logged solves is the single most valuable next step for this member.
Two dating caveats: the official column reports figures current at mid-2026 while the deployed calibration was frozen against slightly earlier vintages, and the saving ratio is volatile quarter to quarter, so β is matched to a smoothed level rather than the latest print. Two structural caveats carried over from OG-Core: the ability types and lifetime earnings profiles are still the US tax-microdata estimates, and UK re-estimation is an open task.
Experimental limitations.
| limit | detail |
|---|---|
| Version pin | The integration installs oguk from GitHub (0.3.2), which pins policyengine-uk==2.88.0. Versions ≥ 2.89 renamed the microdata dataset keys (enhanced_frs_2023_24_<year> → populace_uk_*), so mixing them fails with a KeyError at calibration time; the adapter traps this and raises an actionable error. Lifting the pin is roadmap work — until it lands the OLG member scores against a slightly older statute vintage than the microsimulation member. A declared inconsistency, not a hidden one. |
| Gated data | Calibration needs the private enhanced-FRS microdata, so a HUGGING_FACE_TOKEN with access is a hard prerequisite. |
| Thin CI | CI cannot exercise a seventeen-minute solve on every commit, so regressions in solve behaviour are caught by scheduled runs and by hand, not continuously. |
| Steady-state-only in the CLI | Because the CLI exposes steady-state solves only (Code, step 7), the model cannot yet speak to fiscal-year profiles through the suite — the long-run destination is available through it, the path there is not. |
| Ability profiles not UK-estimated | Lifetime-ability profiles are inherited rather than re-estimated on UK microdata. On the roadmap. |