EUROMOD : the flexibility to “add new countries” Holly Sutherland Institute for Social and Economic Research, University of Essex (with Francesco Figari, Horacio Levy, Christine Lietz and Alari Paulus) ESRC/BSPS Microsimulation seminar 2 nd April 2009, LSE

2 Outline What is EUROMOD and what is it for? Context: past, present and future Model structure – and the process of model construction/maintenance Model components – user interface – functions – data – documentation Challenges

3 What is EUROMOD and what is it for? EUROMOD is a multi-country tax-benefit model for the European Union: unique National tax-benefit models exist in most of the EU15 and some of the NMS  National models for national analysis without complex changes  EUROMOD for national analysis involving complex changes or comparative multi- country analysis or trans national research (EU level) Cross-national comparisons – equivalent outputs with different inputs – huge range of options maximise flexibility – defining variables that improve comparability/equivalence e.g. net social benefits, child contingent payments, indicators of work incentives The differential effects of “common” reforms Policy learning across countries: “policy swapping” ─Understanding the effects of tax-benefit systems on different populations ─“Borrowing” policies that seem effective in one country (e.g. UK WFTC) Any non-commercial research use (academic, govnt., EC, OECD etc.), free of charge, subject to input data access permission and EUROMOD acknowledgement

4 Past and present EUROMOD was originally built (for EU15) because of difficulties in making national model calculations comparable, funded by a series of European Commission projects ( ) It was first constructed very fast in a learning-by-doing way Lessons learned [flexibility-comparability-ease of use and maintenance] fed into new design applied to 4 NMS (I-CUE FP6 RIDS project ) A common framework for doing equivalent things across countries – a unified design – common structure and building blocks – disciplined input data specification Complexity requiring – good documentation including validation – training and support for users – specialist developers + national expertise A further revision is ongoing now (EC DG-EMPL) to be applied to all EU27 The EUROMOD framework has been used for a model for South Africa and is in process for LATINMOD (5 countries)

5 Current status Direct taxes and cash benefits only; no indirect taxes or non- cash benefits; most contributory benefits and pensions are not fully simulated Standard model: static calculations; benefit take up is assumed to be 100%; no tax evasion. EU15 plus 4 NMS (EE, PL, HU, SI) Data either matches policy year or precedes it a few years (then uprated); various datasets

6 Current/future EUROMODupdate: DG-EMPL funding – extend EUROMOD to EU27 – re-base using the EU-SILC (Eurostat UDB) as the input data – update policies to the EU-SILC data year + a very recent year – re-write the EU-15 using the revised framework – encourage the use of EUROMOD for policy relevant research by all relevant people/bodies – establish a regular (annual) programme of updating (data and policies) – transfer as much of the maintenance as possible to national teams – train more people to use the model Links to other models/developments – indirect tax – labour supply – non-cash incomes – benefit take-up and tax evasion – new spin off models for non EU countries

7 What are the key requirements? All country-specific (data or policy) features should be parameterised and not in the code Generic functions and variable definitions should work across countries (“building blocks” or a common “language”) Transparency, and a “getting started” mode of working for both developers and model users

Model structure

9 EUROMOD structure Original data (agreed with national teams) Code (written and compiled in C++) Model input data (individual-level data prepared by national teams,text files) Parameters (Excel files) Policy rules (reported by national teams) Micro output data e.g., net income (text files) Specific analysis (e.g., Stata, SPSS) Tools for basic analysis (Excel files/macros)

10 EUROMOD parameter files Information about the input dataset and tax-benefit system the model needs for producing its output is stored in an Excel file (using different sheets), one set for each country: – CONTROL → datasets definitions and general settings – POLICY SPINE → order of policy simulations – POLICIES → rules of tax/benefit instruments decomposed into elements (i.e. functions) – TAX UNITS → definitions of assessment units – INCOME LISTS → definitions of income concepts – UPDATING FACTORS → to update input data monetary values to the system year An additional common file (Variables.xls) defines all the variables used in the model.

Model components: user interface (operating system)

12 Operating system

13 Running EUROMOD Check and select countries and data-system combinations Output path: where output files are to be saved

14 Control Parameter names Parameter values for EE-2005 system Define dataset 1 Define dataset 2 General settings Grouping used

15 Policy spine (i.e. order of policies) Function On/off switch

Model components: functions

17 Policy functions (just 6 of them) func_Elig “eligibility function” - most frequently used for determining the eligibility for receiving benefits; also liability for paying taxes and evaluating other conditions func_BenCalc “benefit calculator” func_ArithOp is a simple calculator, allowing for the most common arithmetical operations func_SchedCalc implementation of the most common (tax) schedules func_Allocate (re)allocates amounts (incomes, benefits, taxes) between members of assessment units func_Min and func_Max are simple minimum and maximum calculators

18 Policies: a real example

19 Policies: a Simpleland example (1)

20 Policies: a Simpleland example (2) “copy” (using EUROMOD tool to add a system) and edit new columns to create reforms to existing policies copy and edit policies (groups of rows) to create new policies or “swap” policies across countries use the add country EUROMOD tool and copy/edit policies for new countries

Model components: input data and output variables

22 EUROMOD input database Definition and names of EUROMOD variables (input and output) follow a standardised approach – list of acronyms that, put together in a predetermined order, build a variable name Two classes of acronyms, ordered hierarchically: – Class 1: IDentification number, Asset, Labour market, Demographic, System, primarY income, eXpenditure, Benefit, Pension, Taxes and contribution, in Kind – Class 2: two characters to identify specific information for the subject more than one acronym can be used many categories of acronym, to be used as necessary – Simulated variables end with _s, e.g. bch and bch_s

23 EUROMOD variables example: child benefits (so far)

Model components: documentation User guides Developer guides Country reports Recipes and research applications See

25 Challenges Input data access, quality, comparability and suitability Enlarging and nurturing the user community Managing model revisions and transitions IP issues related to spin-off models Maintaining the model developer team – we are recruiting (closing date 27 th April): see or

26

27 Definition of income concepts

28 Definitions of assessment units

29 Uprating factors

30 Variable definitions