How do public policies affect individual households? Design and uses of EUROMOD: an EU-wide tax/benefit model Herwig Immervoll OECD IZA, Bonn ISER, University of Essex

2 Background & acknowledgements EUROMOD: Consortium of academics and government researchers in most EU Member States: currently around 20 institutions; 50+ researchers Model building based on a number of EU- funded research projects, starting in mid- 1990s Co-ordinated by Holly Sutherland (ISER, University of Essex) Model applications at national and international level, including for OECD

3 Outline Tax-benefit models What is EUROMOD? Benefits: Illustration of uses The EUROMOD database Data access: experience and status quo Data access: the future

4 Tax-benefit models Calculate cash benefits and taxes and contributions for a (large) sample of households, representative of the population Focus on policies that can be straightforwardly assigned a monetary value. The main output from the model is household income. Representative and results for: –aggregates (budgetary effects) –distributions (poverty and inequality indicators) –individual families (real and hypothetical) –indicators of incentives (e.g. net replacement rates) and changes in these for alternative scenarios

5 EUROMOD - what is it for? EU-15, currently being extended to New Member States Built with comparability as the main objective 1)Cross-country comparisons –analysis of existing policies –policy swapping 2)Common reforms or reforms with common objectives 3)National reforms with an EU perspective 4)National analysis for countries without national models 5)What if questions about –existing policy instruments and sub-components –changes and reforms (actual, proposed, hypothetical scenarios)

6 EUROMOD - an integrated model Original incomes (mainly market income) taken from micro-data. Tax liabilities and benefit entitlements are simulated using detailed policy rules of a particular year … and re-simulated for each new scenario Aim is to replicate individual tax liabilities and benefit entitlements that tax authorities and benefit agencies would determine. Requires detailed information about market incomes, family circumstances and labour market status for each individual. good-quality micro-data is essential.

7 Uses of EUROMOD: Examples of recent work 1)Redistribution of existing tax and transfer policies in EU-15 2)Evaluating alternative policy scenarios: How can more generous transfers help to reduce child poverty? How much does it cost? 3)Work incentives: What part of family income is maintained when becoming unemployed?

8 1. Equalising effect of tax-benefit systems (% change in Gini coefficient) Source: EUROMOD (Immervoll et al., 2006) Countries are ranked in descending order of inequality

9 1. (continued) Equalising effect of different policies Source: EUROMOD (Immervoll et al., 2006) Countries are ranked in descending order of inequality

10 Source: EUROMOD Work in progress: Levy, Lietz, Sutherland 2. The spending - child poverty trade-off Effects of increasing payments per child

11 3. Work incentives: Distribution of Net Replacement Rates Source: EUROMOD (Immervoll, ODonoghue, 2003)

12 The EUROMOD database Representative household micro-data for each country Fully documented and transparent data sources; sampling; non-response Partly harmonised to ensure comparability: variable names & definitions EUROMOD core variables for all countries But different sources and levels of detail best available data in each country

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14 Data access Separate agreements with each data provider; different access conditions Conditions for accessing full database: go by most restrictive agreement Selective use of particular data sets possible Users need to have or obtain access permissions individually from each original data provider Or as part of a project consortium (e.g. EU-financed FP5 project MICRESA: Micro-level Analysis of the European Social Agenda)

15 Data access: future perspectives Long-term access negotiated on behalf of all users Secure remote access: promote access and ensure compliance Benefit from experience of existing facilities (UKDA, LIS, DIW) Customisable: Scope of RA would reflect access conditions stipulated by each data provider EU SILC in addition to national databases + many users will have existing access permission + one set of access conditions for all countries

16 EUROMOD: information, statistics, results receive news about EUROMOD: