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Micro-Simulation of Tax Benefit Reforms in Russia
- Project name/title
- Micro-Simulation of Tax Benefit Reforms in Russia
- Year:
- 2000
- Theme:
- Transition to the Market
- Abstract:
- Micro-simulation models play an important role in policy analysis in developed economies, particularly in connection with the distributional impact of tax and benefit reforms. The models begin with a household data set which is broadly representative of the population at large, and then try to simulate the consequences of tax and benefit changes, taking account where possible of the behavioural responses of individuals. The objective is to show how the changes affect different types of households in different ways, and to assess the overall impact on individual living standards, poverty rates, and other indicators of household well-being. Although micro-simulation models are rarely encountered in the development field, improvements in data coverage and quality now make it feasible to consider their application to transition and developing countries. One advantage is the more explicit attention paid to heterogeneity of experience across the population, making it easier to identify the impact on particular target groups such as those in poverty. A second advantage is the ability to consider the complex interaction between different programmes when, for example, the adverse effect of one policy change is offset by the beneficial consequences of another. UNU-WIDER is an ideal environment in which to consider the application of micro-simulation models to developing and transition economies, although the policy options will typically be different from those in developed nations, and the models may initially be based on a less detailed household database. In the longer term, it may well be possible to extend these models to cover the distributional impact of traditional macroeconomic policy changes, by linking a broad range of policy options and macroeconomic conditions to the behaviour and experience of a representative sample of individuals. The objective of this project is to design a tax-benefit model for Russia and to assess the opportunities for constructing similar models for other countries. Given its recent history, Russia is a particularly interesting country in which to study the distributional implications of tax and benefit reforms. It exemplifies the problems of a country plagued by a succession of economic crises, where everyday life has been transformed by the uncertainties arising from substantial inflation, a disintegrating social infrastructure, deteriorating environmental conditions, and substantial wage and benefit arrears. One of the crucial questions here is how people cope with a dramatic deterioration in their circumstances, and the obvious corollary: how can policy actions help mitigate the impact of economic and natural disasters on those most at risk? Many valuable lessons for policy towards poverty can be learned from studying recent experience in Russia. It is envisaged that the project will assemble a variety of material. General background studies, not specific to Russia, will review the aims and achievements of tax-benefit models in developed nations; identify the best way of structuring and writing the computer programs; and consider the best way of summarizing the outcomes of alternative policy scenarios in terms of the average incomes of various population subgroups, their poverty rates, and other indicators of household well-being. These background studies should be useful to those contemplating similar models for other developing countries. The model constructed for Russia will consist of two main components. First, sample survey data will be used to construct a household database (appropriately weighted) which is broadly representative of the whole population. It is anticipated that the primary data will be drawn from the Russian Longitudinal Monitoring Survey and the official Goskomstat household budget surveys. The bi-monthly VCIOM data may also be used. It will be necessary to evaluate the reliability of these data, bearing in mind the problems associated with home produced goods, informal economic activity and under-reporting of income in household surveys. The second component will describe the links between the circumstances of households and the tax and benefit programmes. This will require a review of the current tax-benefit system in Russia, the recent changes which become effective in 2001, and the tax and benefit reforms that are candidates for the future. Further work will examine the likely reactions of households to the policy changes, and possibly the general equilibrium effects of these behavioural responses. The detailed work on Russia is expected to be undertaken in collaboration with Russian government officials and research institutes in Moscow. The project will aim to produce a number of studies assessing the distributional impact of past changes to the tax and benefit structure, and possible future changes to programmes such as pensions and housing subsidies. It is hoped that this work will make an important contribution to policy formulation in Russia in future years. While the need for detailed background studies and institutional knowledge makes it desirable to focus on a single country, the project will also consider the problems likely to be encountered if similar models are constructed for other developing and transition countries .
- Director:
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- Assistant:
- Lorraine Telfer-Taivainen
- Project Meetings
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- Publications:
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