From Data to Decisions: Evaluating Income Policies Using Tax and Benefit Microsimulations 2400-ZEWW984

The course consists of 5 lectures, 9 computer lab sessions, and a test verifying the ability to independently conduct and interpret the results of a simple simulation of a tax-benefit change using the EUROMOD model. After completing the course, the student should be able to independently generate budget constraints for a simple reform consisting in changing the parameters of the existing policy, create a simulation scenario for such a reform. Simulate the results (i.e. the value of disposable income) for the baseline and reform scenarios, and then comment on the fiscal, distributional effects and changes in poverty, income inequality, and the scale of progressivity after the implementation of the regulatory change.
Part I. Introduction [1-2]
Lecture 1 [1]. Beginnings. Orcutt's work from the 1950s and 1960s (Orcutt, 1957 and 1960). A critique of the representative consumer approach to analyzing the effects of economic policies and the consequences of aggregating values ​​from nonlinear relationships when evaluating social policies. Benefits of distributional analyses in the social sciences. The postulated “architecture” of the simulation model – inputs, outputs, operating characteristics. Specificity of tax-benefit models. History of development of tax-benefit models: from tax-benefit “calculators” to dynamic models.

Lecture 2 [2]. Types of tax-benefit models and their applications: static, behavioral, dynamic models. Models using synthetic data (The OECD tax-benefit calculatr, HHoT/Euromod) and representative data. Application of tax-benefit microsimulations. Problems in assessing the effects of tax-benefit changes (population variability, policy variability and interdependencies, behavioral changes). Typical issues: validation of survey data, modification of input data, analyses of income deprivation and income differentiation, use of indexation, analysis of changes in financial motivation to work, comparative analyses of solutions from different countries (Figari, Paulus, Sutherland, 2014).

Lecture 3 [3] Discussion of sample works/applications: e.g. Immervoll, O’Donoghue (2001), Bargain & Callan (2010), Gasior & Recchia (2018), Christl, De Poli, Figari, 2023 ; Blasco, Guillaud, Zemmour, 2023; Tervola, J., Mesiäislehto, M., & Ollonqvist, 2023; Frericks, Gurín, Höppner, 2023; Avram, Popova, 2022. Tax-benefit models for Poland: SIMPL and EUROMOD/PL.

Part II. OECD tax-benefit calculator

Laboratory 1 [4]. The OECD Tax-Benefit Calculator – an example of a model for synthetic data. Model documentation: model scope (included and excluded tax and benefit solutions). Model results: household budget constraints, disposable income: net household income, tax burden indicators, benefit generosity – net replacement rate NRR, income adequacy, financial motivation to work – PTR, METR). Sample reports using data from the calculator (e.g. Taxing Wages).
Lab 2 [5]. Exercises 1. Simulation and analysis of budget constraints for different types of families and different wage values.
Lab 3 [6]. Exercises 2. Simulation of indicator values: NRR, simulation of the adequacy indicator of minimum income benefits, effective marginal tax rate (METR), participation tax indicator (PTR).

Part III. EUROMOD
Lecture 4. [6] The “Euromod” project: when, where, how and why it was decided to build tax-benefit microsimulation models (Figari, Southerland, 2013). Current stage of development: countries and possibilities (modules). EUROMOD-ONLINE. EUROMOD-Desktop. Discussion of sample works.

Lab 4 [7]. Exercises 3. EUROMOD-ONLINE. Budget constraint simulations using synthetic data: identification of reform effects for sample families. Simulations using EU-SILC data: fiscal and distributional effects of selected reforms.

Lecture 5 [8]. How is EUROMOD created? EU-SILC source data. Building a model database based on EU-SILC (Codebook). Limitations of the model database (simulated and non-simulated variables). Documentation: analyses and use of the “Country Report”.

Lab 5-6 [9-10] Exercises 4. EUROMOD/HHoT. Basic panel elements. HHoT module (Hypothetical Household module). HHoT documentation. Defining hypothetical households. Generating the input set. Adding the input set to the model. Connecting data to the system (tax and benefits). Simulation of budget constraints for sample families. Analysis of budget constraints.

Lab 7-8 [11/12] Exercises 5. EUROMOD/Policy. Coding of policies and instruments. "Policy" sheet: constants, uprate, income lists, tax units, definitions of income variables, coding of policies, definitions of outcome variables. Defining the "disposable income" variable (ils_dispy). Changing the system parameter. Creating a new "policy". Comparing budget constraints for the baseline and reform scenarios (changing the system parameter). Example implementation of the new policy.

Lab 9-10 [13/14] Exercises 6.EUROMOD. Simulation of disposable income on training data reflecting EU-SILC data for an example country. Designing a system change. Building and simulating a new simulation scenario (reform). Comparison of results for the baseline and reform scenarios using the "In-depth Analysis" application. Interpreting results.

Test [15]: Independent generation of budget constraints for a given reform, creation of a simulation scenario including the reform. Simulation of results (values ​​of disposable income) for the baseline scenario and the reform on training data, assessment of fiscal and distributional effects, and analysis of changes in poverty, income inequality, and the scale of progressiveness.