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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. What is TAXBEN?.

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Taxben the ifs static tax and benefit micro simulation model l.jpg

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


What is taxben l.jpg
What is modelTAXBEN?

  • 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 large-scale, 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 l.jpg
Strengths model

  • 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 microsimulationmodels:

    • 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 model

  • 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


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Challenges model

  • 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 andincidence

    • 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

      • Transparency/replicability/verification

      • IFS “monopoly” on personal tax and benefit analysis


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End model


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