Transcript Effects of flat tax reforms in Europe on inequality and

EUROMOD: the tax-benefit
microsimulation model for the European
Union
Holly Sutherland
ISER, University of Essex, UK
2009 Annual Conference of the Association of Public Policy Analysis and Management
Pre-Conference Workshop • An International Policy Exchange
European Measures of Income, Poverty, and Social Exclusion: Recent Developments and Lessons for
U.S. Poverty Measurement
Washington DC 4th November 2009
Overview
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What is EUROMOD?
How does it relate to the EU Social Inclusion strategy?
What can EUROMOD do?
Academic use of EUROMOD
What else can be done? Future plans for EUROMOD
How to find out more
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What is EUROMOD?
• A multi-country tax-benefit microsimulation model for the EU:
unique
• It simulates tax liabilities and welfare benefit entitlements
using micro-data on household from survey micro-data (c.f.
NBER’s TAXSIM; Urban Institute’s models)
– Distributional, budgetary, incentive effects
– First round effects; linkage to behavioural/macro models
• Highly structured, flexible and transparent
• A network of national experts in each country + core team of
developers (researchers)
• Widening network of users: free for academic and noncommercial use
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How does EUROMOD relate to the EU Social Inclusion
strategy?
• No formal relationship - but EUROMOD analysis can feed into the OMC
at every level
• EUROMOD updating and enlargement to cover EU27 is currently being
funded by the EC DG-Employment, Social Affairs and Equal Opportunities
• EUROMOD contributes analysis to projects commissioned by EC policy
DGs (e.g. Social Situation Observatory)
• National analysis using EUROMOD may feed into National Action Plans
• Academic policy-relevant research
• It provides a common framework for improving policy understanding and
policy learning across countries
• Also relevant for other related EU-level policy agendas (employment,
“quality” public finance) and therefore for making links between them.
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Using EUROMOD for cross-national analysis: what
does it do? (1/2)
1. Provides variables that do not exist in available micro-data
• Imputation e.g. net and gross incomes (and taxes)
• Customised responses to “what if…?” questions
(counterfactuals)
– Modelling individual choice: budget constraints (=incomes under a
range of conditions) e.g. labour supply responses
– Effects of policies on aggregate outcomes e.g.
• Particular reforms (e.g. What is the effect on child poverty if child benefit
is doubled?)
• Policy learning across countries: “policy swapping”
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Using EUROMOD for cross-national analysis: what
does it do? (2/2)
• Specific aspects of taxes or benefits as explanatory variables e.g.
– entitlement to benefits, rather than receipt
– means-tested vs. contributory benefits
• Current or prospective policies rather than those from the past
2. Comparability across countries
• Huge range of options to maximise flexibility
• Defining variables that improve comparisons e.g.
– net social benefits
– child contingent payments
– indicators of work incentives
• Examples for 19 countries; various years 2001-5.
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Composition of household disposable income
whole population
200
market income
social insurance contributions
means-tested benefits
180
160
personal taxes
public pensions
non means-tested benefits
% of disposable income
140
120
100
80
60
40
20
0
-20
-40
-60
-80
BE DK
DE EE
EL
ES
FR
IE
IT
LU HU NL
AT
PL
PT
SI FI SE UK
Source: EUROMOD
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Composition of household disposable income
bottom decile group
200
market income
social insurance contributions
means-tested benefits
180
160
personal taxes
public pensions
non means-tested benefits
% of disposable income
140
120
100
80
60
40
20
0
-20
-40
-60
BE DK
DE EE
EL
ES
FR
IE
IT
LU HU NL AT
PL
PT
SI FI SE UK
Source: EUROMOD
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Child contingent payments per child by decile group
% of national per capita disposable income
25%
BE
DE
DK
EE
25%
EL
20%
20%
15%
15%
10%
10%
5%
5%
0%
0%
-5%
20
%
15
%
10
%
5%
0%
-5
%
-5%
1
2
3
4
5
25%
6
7
8
9
10
1
2
3
4
ES
5
6
7
8
9
10
1
2
3
4
FR
5
6
7
8
9
10
1
2
3
4
5
IE
6
7
8
9
10
1
2
3
4
5
6
7
8
9
10
25%
LU
IT
20%
20%
15%
15%
10%
10%
5%
5%
0%
0%
-5%
1
2
3
4
25%
5
6
7
8
9
10
1
2
3
4
HU
5
6
7
8
9
10
1
2
3
4
5
6
7
8
9
10
1
2
3
4
5
AT
NL
6
7
8
9
-5%
10
1
2
3
4
5
6
7
8
9
10
25%
PT
PL
20%
20%
15%
15%
10%
10%
5%
5%
0%
0%
-5%
1
2
3
4
5
25%
6
7
8
9
10
1
2
3
4
5
SI
6
7
8
9
10
1
2
3
4
FI
5
6
7
8
9
10
1
2
3
4
5
SE
6
7
8
9
-5%
10
1
2
3
4
5
6
7
8
9
10
25%
UK
20%
20%
15%
15%
10%
10%
5%
5%
0%
0%
-5%
Child contingent benefits
Source: EUROMOD
Child contingent taxes
Total net payments
Share of children
-5%
1
2
3
4
5
6
7
8
9
10
1
2
3
4
5
6
7
8
9
10
1
2
3
4
5
6
7
8
9
10
1
2
3
4
5
6
7
8
9
10
Source: EUROMOD
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Incentives to work (METRs)
Average marginal effective tax rates (METRs) faced by working
population
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
GR
SP
EE
PT
IR
LU
UK
PL
IT
Mean
NL
AT
Median
FR
HU
SW
FI
SI
GE
DK
BE
Source: EUROMOD
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Academic use of EUROMOD
• Examples
– F. Figari, H. Immervoll, H. Levy, H. Sutherland, Inequalities within couples
in Europe: market incomes and the role of taxes and benefits, Eastern
Economic Journal, forthcoming.
– A. Paulus, A. Peichl, Effects of flat tax reforms in Western Europe,
Journal of Policy Modeling, 2009.
– O. Bargain, T. Callan, Analysing the effects of tax-benefit reforms on
income distribution: a decomposition approach Journal of Economic
Inequality, 2008.
– H. Immervoll, H.J. Kleven, C.T. Kreiner, E. Saez, Welfare Reform in Europe:
A Micro-simulation Analysis, Economic Journal, 2007.
– H. Levy, C. Lietz, H. Sutherland, Swapping Policies: Alternative TaxBenefit Strategies to Support Children in Austria, Spain and the UK,
Journal of Social Policy 2007.
• Building a user community
– Working Papers, “Recipes”, work-in-progress conferences
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Future plans for EUROMOD: what else can be done?
• A new version of EUROMOD
– enlarge from 19 to 27 countries
– regular updating of policy rules
– Eurostat EU-SILC database (regularly updated)
– 3-year project 2009-12
• And…?
– indirect taxes
– non-cash incomes
– childcare policies
• General framework can be used to shortcut the process of
building comparable models for any country (e.g. SAMOD for
South Africa)
• Towards WORLDmod?
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Further information on EUROMOD
Web site: http://www.iser.essex.ac.uk/research/euromod
– Country Reports
– Recipes and user documentation
– Working Papers
– Courses
– Projects
– Statistics
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Challenges
• Non take-up of benefits and tax evasion
• Data issues
• Management and updating
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