Autumn School Dynamic MSM16-18 November 2015 | L-Esch-sur-Alzette Slide 1 Note Combining LIAM2 and EUROMOD: a (useful?) possibility

Autumn School Dynamic MSM16-18 November 2015 | L-Esch-sur-Alzette Slide 2  Given complexity of microsimulation models, hence development costs, it is often useful to raise the question of a combination of tools rather than parallel compositions  This is particularly true as soon as the static model EUROMOD (Sutherland et al.) and dynamic models built from LIAM2 (O’Donoghue et al., Dekkers et al.) are considered  Their internal structure, including variables needed for simulation, and their technical implementation show similarities that make an interaction a priori promising  We explain how it is feasible, emphasize limits of the exercise + example of application if time left (*) Liégeois Ph. and G. Dekkers, (2014), Combining EUROMOD and LIAM Tools for the Development of Dynamic Cross-sectional Microsimulation Models : a Sneak Preview, in G. Dekkers, M. Keegan and C. O’Donoghue (eds), New Pathway in Microsimulation, Burlington : Ashgate Motivating the combination (*)

Autumn School Dynamic MSM16-18 November 2015 | L-Esch-sur-Alzette Slide 3 What’s at stake ? Gross Income variations Modifications of Employment status Demographic changes Reforms of Tax-benefit systems Macro adjustments EUROMOD Capital income MiDAS_LU  Option E=>D : feeding the dynamic model from EUROMOD (for T-B)  Option D=>E : “dynamizing” the EUROMOD framework e.g. for “nowcasting” :

Autumn School Dynamic MSM16-18 November 2015 | L-Esch-sur-Alzette Slide 4 How proceeding ? S TEPS T ASK R EMARKS 1 Preparing input dataset for MiDAS_LU (LIAM2) Cross-sectional instance, maybe with some lifecycle information (e.g. incomes, for pensions) 2Running MiDAS_LU Outputs : households and individual socio-economic characteristics & incomes for several subsequent years 3 Preparing inputs datasets for EUROMOD from MiDAS_LU output - A few variables may have to be redesigned when definitions inconsistent in static and dynamic frameworks, whatever D=E / E=>D - More importantly, some variables may miss (e.g. capital income), which may be limitative especially if Option D=>E 4 Preparing parameter sheets for future public policies in EUROMOD -Parameters (e.g. tax rates), but also the policy design (which policies to be simulated, which variables involved) -- May be a demanding process if Option E=>D 5Running EUROMODOutputs : TXT files 6Combining Results Either within MiDAS_LU (hence EUROMOD outcome back to the dynamic model) or outside (e.g. STATA)

Autumn School Dynamic MSM16-18 November 2015 | L-Esch-sur-Alzette Slide 5  Option D=>E : MiDAS_LU “feeding” EUROMOD for demog & gr. income  The dynamic model does not generate all information (capital income, maintenance payments, etc) available in the static model (based on survey data)  In particular, the dynamic model generates “nuclear” households (parents + children) rather than standard “residence” households  Some gap between input data (situation observed in year t) and first output data (simulation for t+1 on), in the dynamic model  “Weighting” of households (survey data) to be addressed in dyn MSM  Option E=>D : EUROMOD “replacing” the T-B module in Dyn. Model  Given limitation in the design of policies in dynamic modelling framework, EUROMOD must be recomposed for this specific use  Both options : Common variables needed & T-B cannot play a role on demographic & socio-economic status (one-way impact) Conclusions : (reminding) remarks & limitations

Autumn School Dynamic MSM16-18 November 2015 | L-Esch-sur-Alzette Slide 6  A simple evolution is considered:  Hourly wage : nominal (Consumer Price Index :+ 2.5%/year) and real annual growths  Income taxation : change of tax brackets (conformly to the CPI:+ 2.5% / year)  Family allowances : one-shot increase in 2013 : + 2.5% ^ 5  Several social references & thresholds uprated through a central parameter so-called “Minimum Social Wage” : CPI & real growth of the hourly wage  Social assistance indexed on consumer prices  What about outcomes if “dynamics” is introduced ? (*) Liégeois and Dekkers (2014) Example (*) : Reform of the Tax-Benefit System & Evolution of the gross Income ( )

Autumn School Dynamic MSM16-18 November 2015 | L-Esch-sur-Alzette Slide 7 Analysis of Results : Population vs T-B effects  3 basic views simulated :  All fields concerned (“POL_POP”)  Population and gross Income fixed at their 2008 level ; Tax-Benefit system evolving, population and gross earnings fixed (“POP_2008”)  Tax-Benefit system fixed at its 2008 level ; Population and gross earnings evolving (“POL_2008”)

Autumn School Dynamic MSM16-18 November 2015 | L-Esch-sur-Alzette Slide 8  3 basic views simulated :  All fields concerned (“POL_POP”)  Population and gross Income fixed at their 2008 level ; Tax-Benefit system evolving, population and gross earnings fixed (“POP_2008”)  Tax-Benefit system fixed at its 2008 level ; Population and gross earnings evolving (“POL_2008”) Analysis of Results : Population vs T-B effects

Autumn School Dynamic MSM16-18 November 2015 | L-Esch-sur-Alzette Slide 9  3 basic views simulated :  All fields concerned (“POL_POP”)  Population and gross Income fixed at their 2008 level ; Tax-Benefit system evolving, population and gross earnings fixed (“POP_2008”)  Tax-Benefit system fixed at its 2008 level ; Population and gross earnings evolving (“POL_2008”) Analysis of Results : Population vs T-B effects