Transcript Microsimulation at the IFS: achievements and challenges

TAXBEN: the IFS’ static tax and
benefit micro-simulation model
Mike Brewer
Programme Director, Direct Tax and Welfare team
Institute for Fiscal Studies, London, UK
© Institute for Fiscal Studies
What is TAXBEN?
• A static tax and benefit micro-simulation model of taxes on
personal incomes, local taxes, expenditure taxes, and
entitlement to benefits and tax credits that operates on largescale, representative, household surveys
• Mainly used for analysing tax and benefit changes
– cost to government, winners and losers, impact on income
distribution and work incentives
• Originates from early 1980s; largely unchanged since mid 1990s.
(http://www.ifs.org.uk/wps/wp1995.pdf)
• Written in Delphi (a form of Pascal)
• Can be run through a front-end, but also called directly from (eg)
Stata; usually use TAXBEN to produce Stata datasets
•
Not used by outsiders; programme used and maintained by small team
of researchers (economists)
Strengths
• Of tax and benefit microsimulation modelling:
– Model interactions between taxes and benefits
– Results are “representative”, and can be produced for sub-groups
• Of TAXBEN, compared with other tax and benefit
microsimulation models:
– Very detailed representation of taxes and benefits
– Very easy to programme hypothetical taxes and benefits
– Kept up to date, and consistent over time (since 1975)
– TAXBEN runs on generic dataset, which can be derived from many
household surveys (FES/EFS, FRS, BHPS, ELSA, LFS)
– Very good for analysing work incentives
• Easy to calculate net income at arbitrary wage-hours points (eg for discrete choice
labour supply modelling)
• At observed earnings, calculates hours-of-work/net-income frontier
and calculates summary measures of financial work incentives
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Achievements
• Recent outputs
– Abolition of 10p tax band (www.ifs.org.uk/bns/bn77.pdf)
– Child poverty in 2010/11 (www.ifs.org.uk/comms/comm108.pdf)
– Income distribution for 65+ from 2002 to 2017
(www.ifs.org.uk/comms/comm103.pdf)
– Evaluation of WFTC using structural labour supply model (Labour
Economics 13(3) pp699-720)
• Key strategic achievements
– Accurate representation of budget constraint has enabled research
into labour supply
– Keeps government honest when discussing personal tax and benefit
changes
– Improved quality of public debate about personal tax and benefit
changes, and thereby improved policy-making
Challenges
• Conceptual challenges in tax and benefit modelling
– Limited by quality of underlying household survey
• Modelling entitlement to disability benefits, contributory benefits and state
pensions; take-up of means-tested benefits
– Employer NICs and incidence
– Relating TAXBEN net income to “actual” net income in HBAI
• Practical challenges
– Maintenance
– Not fast enough for all research applications, and so other “tax and
benefit calculators” exist at IFS
• Strategic challenges
– Reminding outsiders of its limitations (it’s merely a fancy
calculator...)
– Not available for outsiders to use
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• Transparency/replicability/verification
End