1. Michal Horváth, Zuzana Siebertová Meeting of the Network of EU IFIs Workshop on Microsimulation Rome, 4th May, 2018

2. Part I
Introduction

3. Background Evaluating realistic policy measures requires a tool that
Captures national policy environment in fine detail
Is based on good quality and well-adjusted micro data
Generates outcomes that provide a good match with administrative data on aggregate ceteris paribus
Takes a broader perspective (feedback effects)
The CBR microsimulation tool aims for an improvement relative to previously used methods on all these fronts

4. Simulation model at a glance
w_hat if model
(1) SIMTASK: static tax-benefit calculator
(2) Labour supply model
(3) Integrated into a macro model with unemployment
Model allows to answer “what if” type questions
Policy impact at micro level (disposable income, inequality, METR, AETR)
Immediate and long-run fiscal effects
Full transition from one steady state to another for macro variables

5. Part II
OUR APPROACH

6. Data & SIMTASK Re-weighting of the underlying micro-data
More detailed control of selected categories:
income distribution & children-age cohorts
Microsimulation tool SIMTASK
Runs on SK-SILC
Inspired by EUROMOD: tailored to country-specific conditions
Involves a maximum degree of user control —>
can be incorporated within other models used by Slovak CBR
New approach in general improves the fit between simulated output and official statistics

7. SIMTASK: Slovak Tax-Transfer Microsimulation Model
SIMTASK simulates for every individual and policy scenario
Personal income tax
Social and health security contributions paid by employers, employees and self-employed
Social transfers
Family related transfers: child birth grant, child benefit, parental allowance
Social assistance: material need benefit
Unemployment benefit
Net income
VAT paid by households is simulated in a separate block

8. SIMTASK: validation of payroll taxes
LEGEND:
Ratios of aggregate PIT, SIC and HIC payments simulated by SIMTASK to aggregate amounts referred by the official statistics.
Perfect match is achieved if the ratio equals to 1.
PIT: Personal Income Tax
SIC: Social Insurance Contrib.
HIC: Health Insurance Contrib.

9. SIMTASK: validation of social transfers (amounts)
LEGEND:
Ratios of aggregate amounts of transfers simulated by SIMTASK to aggregate amounts referred by the official statistics.
Perfect match is achieved if the ratio equals to 1.

10. Model of labour supply Extensive margin response
Method to assess how the tax-benefit system affects motivation to work
Participation decision of individuals on the labour market is examined by comparing two states
Being economically active
Being inactive
Probit model for economic activity
Estimated as a pooled regression separately for males and females
Most responsive groups were found females and low-educated

11. Labour supply model (contd.)
Intensive margin response
Change in hours worked
… can be expressed as a function of net-of-tax rates marginal and average elasticities
Response calibrated based on estimations for Hungary (Kiss and Mosberger, 2015)
… marginal net-of-tax rate elasticity 0.2 for top 20% earners

12. Macro model A model with unemployment
Dynamic general equilibrium model with matching frictions
Equilibrium wage determination
Labour demand from firms’ profit maximisation
Theoretical bargaining replaced by an aggregate schedule (w, L)
Interaction with the micro part
Aggregate labour supply schedule is based on individual decisions coming from empirical decision functions
Combines empirical work with calibration
A number of macro model parameters calibrated in line with external data and literature

13. How does w_hat if work? “Baseline” and “scenario” evaluation
Compute net wages (observed/predicted for employed/unemployed) and transfers (if employed/inactive) using SIMTASK
Evaluate probability of being economically active, being employed and effective hours worked using elasticities
Aggregation
Aggregate up individual adjustments at extensive and intensive margins
This is done for different simultaneous wage shocks
The result is an aggregate labour supply schedule
Macro model solution
Use standard methods to solve dynamic general equilibrium models
Final steady state solution equivalent to a popular iterative approach

14. EXAMPLES OF MODEL OUTPUTS
Part III
EXAMPLES OF MODEL OUTPUTS

15. Effective tax rates Cuts in family transfers One tax rate 22% Average
Marginal

16. Distributional effects
Cuts in family transfers
One tax rate 22%
Disp. income household
Probability of economic activity
(individual)

17. An aggregate labour supply schedule

18. Macro IRFs

19. Fiscal effects One tax rate 22 % Fiscal effect Fiscal revenue
SIC and HIC paid by
Fiscal exp
Inequality
PIT
employ- ees
employ- ers
self- empl
VAT
CIT
GINI
Kakwani
baseline, 2018 (in mil. euros)
9 284
17 851
2 414
2 616
6 922
1 108
3 115
1676
8 567
27.4
6.4
Short-run
4.11
2.14
16.8
0.0
-0.7
-0.35
0.61
Behavioural effects
3.55
1.85
16.2
-0.3
-0.2
-0.9
-0.41
0.68
Long-run
3.63
1.89
16.5
-0.1
-0.8
-1.1
0.01
-0.4
0.67
Reduction of family related transfers and credits
Fiscal effect
Fiscal revenue
SIC and HIC paid by
Fiscal exp
Inequality
PIT
employ- ees
employ- ers
self- empl
VAT
CIT
GINI
Kakwani
baseline, 2018 (in mil. euros)
9 284
17 851
2 414
2 616
6 922
1 108
3 115
1676
8 567
27.4
6.4
Short-run
1.52
0.24
2.1
0.0
0.1
-0.3
-1.2
-0.2
0.16
Behavioural effects
1.51
0.23
-0.01
-0.21
0.15
Long-run
1.48
0.21
2.0
-0.1
0.03
0.2
Notes: First row (baseline) represents direct output from the simulation model; monetary variables in mil. euros. Subsequent rows display changes in % from baseline values. In case of inequality measures the numbers express changes in percentage points. SIC - social insurance contributions, HIC - health insurance contributions, PIT - personal income tax, VAT - value added tax, CIT - corporate income tax. CIT is computed directly using the effective tax rate.

20. Making the tool accessible
Part IV
Making the tool accessible

21. An online tool SIMTASK on web on-line version of the simulation model
tool to assess immediate fiscal and distributional effects of reforms, impact on inequality
targeted to public: analysts, journalists, students
available at

22. Thank you for your attention