InGRID winter school in ‘Cross country microsimulation’ Day 1 Miko Tammik, Andrea Papini, Kostas Manios & Diego Collado ISER, University of Essex 21-23 November 2018 Course based on EUROMOD v. H1.0+

Outline: Day 1 Morning (10:00-13:15 with a break at 11:30) Tax Benefit Microsimulation and EUROMOD Model Design The EUROMOD User Interface(UI) Running EUROMOD Statistics Presenter tool Error handling Documentation Afternoon (14:15-17:15 with a break at 15:45) Hands-on practice: Exercise 1 EUROMOD functions and parameters Hands-on practice: Exercise 2

Outline: Day 2 Morning (9:30-12:30 with a break at 11:00) Income lists EUROMOD Functions and Parameters (cont.) Hands-on practice: Exercise 3 Afternoon (14:00-17:00 with a break at 15:30) Hands-on practice: Exercises 4 & 5 Hands-on practice: Exercise 6

Outline: Day 3 Morning (9:30-12:30 with a break at 11:00) Assessment (tax) units in EUROMOD Hands-on practice: Exercise 7 Afternoon (14:00-17:00 with a break at 15:30) Hands-on practice: Exercises 8 & 9 Presentations by participants Using EUROMOD after the course Q&A

Tax-benefit microsimulation and EUROMOD

Microsimulation Micro: technique using units (ex: individuals, households, firms etc.) instead of aggregate information Tax-benefit models: household microdata Simulation: application of an intervention that may change the state or behaviour of units Tax benefit models: tax and benefit rules  determine entitlements & liabilities Contribution: estimates results derived from the application of these rules on each unit. Tax benefit models: impact on disposable income

Why tax-benefit microsimulation? Population diversity and frequency Policy complexity: detail and interactions Source: Euromod using EU-SILC 2004

What makes EUROMOD special? Multi-country tax-benefit model for the European Union: unique Harmonised data and simulations Very flexible structure (but scope depends on data available) Tax-benefit modelling language: universal Library of policies

What can EUROMOD do? Simulate previous, current, future and “potential” tax-benefit rules Distributive analysis Budgetary effects Indicators of work incentives Complex policy reforms (e.g. revenue-neutral) Policy swapping Counterfactual (“what if”) scenarios (e.g. stress test) EU-wide policy reforms Tax evasion and non-take-up simulation/calibration (special data ) Input in other analyses (ex: labour supply models; links with CGE etc.)

Examples-Counterfactual scenarios (I) To what extent tax-benefit systems support those who became unemployed at the onset of the Great Recession? Source: Fernandez et al. (2013) Review of Income and Wealth

Examples-Counterfactual scenarios (II) Poverty effects of child related policy instruments in Poland Source: Levy, Morawski and Myck, Euromod Working Paper 3/08

Examples-Work incentives Calculate Marginal Effective Tax Rates Source: Jara and Tumino (2013) International Journal of Microsimulation

Examples-EU-wide reforms Net replacement rates with and without a EU-wide UI benefit Source: Jara & Sutherland (2014) Social Situation Monitor Research Note 3/13

Examples-Behavioural reactions Calculating labour supply elasticities Source: Bargain et al. (2013) Journal of Human Resources

EUROMOD in this course EUROMOD is continuously being developed and improved Software version: 2.1.0 Latest public release (H1.0+) Countries and policies All 28 EU MS implemented #of policy years (‘Systems’) implemented varies by country 2005-2017 : BE, CZ, EE, EL, ES, IT, PL, UK (longest series) 2011-2017: HR (shortest series) All consecutive years after the starting year-implemented Data EU-SILC/ FRS (UK) training data # of datasets available –depends on country

Overview of EUROMOD design

Structure Input microdata (text file in tabular format) Policy parameters (XML files-EUROMOD UI) Simulations/ Calculations (EURMOD Engine in C++) Output microdata with additional simulated variables (text file in tabular format)

EUROMOD input dataset Generated (using a software package; ex: Stata) from the source micro-data (SILC) Text file (in tabular format) 5 types of variables (plus identifiers): demographic, labour, income, assets, expenditure Some variables-compulsory (e.g., id, age, weight, incomes) Harmonised data reference period No missing values allowed All income and expenditure –gross values Incomes & expenditure-at the individual level Monetary variables reported on (average) monthly basis Documentation (do-files template , DRD, & EMC)

Variable name convention Names are combination of acronyms: abb** a – type of information (e.g., y: income, x: expenditure) bb – specific for each type a (e.g., y| em: employment, se: self employment) eg. yem: employment income yse: self-employment income ** further bb’s for additional information/detail eg. ysebs: business self-employment income exception id*, eg. idperson, idmother

Structure Input microdata (text file in tabular format) Policy parameters (XML files-EUROMOD UI) Simulations/ Calculations (EURMOD Engine in C++) Output microdata with additional simulated variables (text file in tabular format)

EUROMOD policy parameters Contain all info about tax-benefit rules Stored in XML files read by the EUROMOD engine Common Variables file (VarConfig.xml) Manipulated via user interface (UI) UI-stand alone software based on .NET framework Scope: Social insurance contributions Income tax Non-contributory benefits (means-tested or not) Contributory unemployment benefits (approximation) Min wage Additional policies-country specific!

EUROMOD User Interface

Installation Requires Microsoft .NET framework files or an Internet connection to download files in the SETUP process Complete separation between UI and ‘content’ (i.e. XML) files Only one copy of the UI but can use multiple ‘content’ files ...but content files must have set structure of folders Run the Installation Wizard Set the path to your EUROMOD files Project path (if necessary) separate input data and output data paths

EUROMOD folder structure

Linking EUROMOD to content files

User Interface (UI) Single stand-alone piece of software Mostly point and click but some hot keys are available (standard and specific) In-built features that allow for improved user control and guidance Intuitive!! Features: Ribbon bar with tabs Context menus IntelliSense (suggestion of parameter values ) Drag and drop Bookmarks and comments Built-in help Display customization …much more New features and capabilities added over time

User Interface (UI) Ribbon bar Run button Country files

Working environment open country policy systems comments policies

Ribbon bar Country tools: - open country to activate buttons -contains options that manipulate the general parameters of a country file -name and acronym -currencies used for parameters in the system and output -which datasets are available and their characteristics -Adding and deleting systems -Viewing options: -search and replace -formatting -bookmarks -Comparing versions -More advanced (import/ export systems, add-ons etc.)

Systems Settings set exchange rate income used for head definition output currency Parameters’ currency

Database settings Policy years for which available characteristics of dataset adding/ deleting folder where micro-data stored if different from default

Ribbon bar View full spine vs. single policy Display: Control display and formatting View full spine vs. single policy Conditional formatting (similar idea to EXCEL) Bookmarks Matrix view of income lists Visualising/ hiding key parameters

Ribbon bar Administration tools: adding and deleting countries accessing and administering the variables file updating progress: overview of available policy systems and datasets merging versions administrating switches administrating exchange rate and HICP series

EUROMOD Help browse search

Variable Administration

Variables file list of all variables defined in the variables file in alphabetical order name variable is monetary or non-monetary automatic label description of variable for countries where it is used

Adding a variable new empty row; fill in name and monetary

Naming a variable acronyms UI checks validity of name and existence of the variable

Filtering variables select filters

Context menus

Context Menus Activated by right-clicking Column headings Row headings Function headings/ parameter names Comments Intuitive options controlling the respective elements

IntelliSense