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Holly Sutherland , ISER University of Essex 3 rd ESRC Research Methods Festival, Oxford 30 June – 3 July 2008 Session 45. Using microsimulation to understand the effects of social and fiscal policies in cross-national context. Overview.

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Overview

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  1. Holly Sutherland, ISER University of Essex3rd ESRC Research Methods Festival, Oxford 30 June – 3 July 2008Session 45 Using microsimulation to understand the effects of social and fiscal policies in cross-national context

  2. Overview • Explaining how EUROMOD, a multi-country (EU) tax-benefit model, produces comparable measures across countries (data for analysis and interpretation) • Illustrated with some measures relevant to gender questions • based on some (long-term) work in progress, • encompassing contributions to GeNet (project 5: Within householdinequalities and public policy) • An example of infrastructure development in the context of a research programme • research questions informing the technical capacity of the infrastructure • infrastructure prompting refinements to research questions • Not so much “methods” as “tools” and issues of measurement and interpretation

  3. Microsimulation models • Microsimulation models provide data for analysis • Tax-benefit models simulate cash benefit entitlements and personal tax liabilities, using micro-data on households from sources that are representative of the population and re-calculating income under alternative scenarios • Consistent results for income-related indicators, including: • budgetary effects • income distributions (poverty and inequality indicators) • redistributive effects • gainers and losers • indicators of work incentives (RRs METRs) • EUROMOD: consistent results across countries • Comparative analysis of the effects of policies and policy reforms • EU-level outputs • Policy learning across countries: “policy swapping” - Understanding the effects of tax-benefit systems on different populations

  4. Using EUROMOD • EUROMOD is a multi-country tax-benefit microsimulation model: unique • It was built because of difficulties in making national model calculations comparable, funded by a series of European Commission projects (1998-2008) • Consortium of teams from each country including universities, research institutes, government : research and policy orientated (a rich mix) • Currently 19 EU countries: EE, PL, HU, SI + EU15

  5. The EUROMOD approach • Comparability through flexibility (parameterise everything in a structured way) • monetary policy elements, tax rates etc units of assessment • interaction of policy elements eligibility conditions • income definitions • A common framework for doing equivalent things across countries • a unified design • common structure and building blocks (“language”) • disciplined input data specification • Complexity requiring • good documentation including validation • training and support for users • specialist developers • Involvement of national teams in model construction, development and collaborative research applications • Creating a user community: EUROMOD is currently free for academic use (subject to access conditions attached to underlying data) • The common framework is now being used in South Africa and for LATINMOD (5 Latin American countries)

  6. Example1:The effect of taxes and benefits on the income of older people • (Joint work with Francesco Figari and Manos Matsaganis for DG-EMPL’s European Observatory on Social Situation and Demography) • Question addressed: The role of pensions in the income of the elderly populations of the EU • minimum pensions, private pensions • by level of household income, age and gender • Conceptual and methodological issues: defining and identifying minimum pensions

  7. Defining and identifying minimum and private pensions • “Minimum pensions”: instruments categorised as minimum income provision for older people in the 2006 SPC study • Universal basic pensions • Social pensions • Social assistance • Means-tested supplements • Integrated minimum pensions • Only some of these can be identified empirically using survey data and/or microsimulation • “Private” pensions here include occupational defined benefit pensions that may replace (rather than complement) state contributory pensions • Information is only as good as the underlying data

  8. Income sources per person aged 65+by quintile group of household disposable income(normalised: % of national per capita disposable income) RH axis shows share of people 65+ per quintile group

  9. Income sources per person aged 65+by quintile group of household disposable income(normalised: % of national per capita disposable income)

  10. Income sources per elderly person (male 65+) as a % of per capita disposable income by quintile group

  11. Income sources per elderly person (female 65+) as a % of per capita disposable income by quintile group

  12. What have we seen? Discussion • Comparability • What is a minimum pension and a private pension? • given the definition, EUROMOD can in principle capture it • BUT some pension elements cannot be identified (data) and many others cannot be simulated (data) • Are the (household) 65+ populations comparable? • differential rates of entry into residential care across countries • ditto retirement abroad • Questions about gender • Treatment of derived rights and inherited pensions • Within (and between) household sharing: assumptions and reality

  13. Example2: Couples, gender inequalities in income, and tax-benefit systems • Based on ongoing joint work with Francesco Figari, Herwig Immervoll and Horacio Levy • Given gender inequalities in market incomes within couples what do tax-benefit systems achieve in reducing these inequalities? or put another way • If couples share their financial resources, how much of the implicit transfer is done for them by governments? • To what extent is the within-couple income-equalising function accompanied by a reduction in equal opportunities for members of the couple, as expressed by differential incentives to work?

  14. (1) “Equalising” analysis • An accounting exercise, dividing household income into individual shares • Couples (m/f; both<65) living in the same household; excluding cases where other adults are present • The relative effects in comparative perspective: 9 EU countries (AT, FR, DE, NL, UK, FI, EL, PT, IT) and systems (2001). • Disposable incomes = market income + cash benefits – income tax - employee/self employed social contributions: at the household level this is used for the analysis of poverty, inequality, redistribution etc. • Incomes allocated between couple partners: • market incomes, individual benefits: to individual • “family” or “household” benefits and those for children shared equally • joint taxes split in proportion to taxable income • individual taxes and contributions allocated to individual • Gender inequality expressed as the woman’s share in the couple total; “Equalisation” is the increase in the female share measured due to the tax-benefit systems

  15. Women’s share of couple income and the equalising effect of tax-benefit systems

  16. Proportional reduction in the gap between male and female incomes due to taxes and benefits %

  17. What have we seen? Discussion • Comparability • Selection effects into couples of interest? • Disaggregate: but how? • Questions about gender • Alternative sharing/splitting assumptions • Within household sharing: assumptions and reality (does income matter as an outcome?)

  18. Work incentive questions: a selection • What is the effective tax rate (METR) on a 3% increase in own earnings? How does this differ within 2-earner couples? Two measures: • change in household income (assumes income is shared as in the unitary model of the family) HMETR • change in individual income IMETR (assumes individual only takes account of “own income” as defined here; consistent with separate spheres model of couple bargaining) • How much does each person need to increase their earnings in order for household disposable income to increase by 10%? • What proportion of earnings is taxed or withdrawn in benefits on entry into work for women with earning partners? • ??

  19. Do women face lower incentives to work intensively than their male partners? • Women in 2-earner couples tend to have lower METRs than men • The exceptions are in the joint taxation countries (GE, FR, PT) and only when METRs are calculated across all household income • Calculating individual METRs makes little difference in individual tax countries (METRs are somewhat lower) • In joint taxation countries: IMETRs show female work incentives to be better than male • Men outnumber women in facing very high HMETRs except in Germany which combines joint taxation with high tax rates. The German picture is reversed using IMETRs.

  20. What are the right questions to ask? • Comparability • Does the appropriate question depend on the extent of labour market flexibility? • Questions about gender • Whose income is important (work incentives)? • Within household processes: e.g. what is the appropriate time period over which to assume couples consider changes (is it the withholding tax system or the final income tax and end of year reconciliation that matters; do they each matter the same amount to men and women)? • This also affects comparability: the right “what if” question may differ across countries

  21. Concluding points • There is a two-way relationship between asking the right research questions and having the means to answer them • I have illustrated this with reference to comparability across countries and gender-relevant analysis • A flexible research tool like EUROMOD can cumulatively build on research using it, adding new options, while also provoking new questions

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