Photo: Joe Miserendino

SOUTHMOD – simulating tax and benefit policies for development

Tax-benefit microsimulation models, which combine representative household-level data on incomes and expenditures and detailed coding of tax and benefit legislation, have proven to be an extremely useful tool for researchers and policy makers alike. The models apply user-defined tax and benefit policy rules to micro-data on individuals and households and calculate the effects of these rules on household income. The effects of different policy scenarios on poverty, inequality, and government revenues can be analysed and compared.

Simulation in developing countries

While microsimulation models are routinely used by researchers and policy makers in developed countries, few developing countries have access to such tools. Many of the developing countries are now building up their social protection systems and the financing of public spending will need to be increasingly based on domestic tax revenues. In this process, understanding the system-wide impacts of different policy choices is critically important, and tax-benefit microsimulation models are very well suited for this purpose.

The research programme

This is the backdrop against which UNU-WIDER, the EUROMOD team at the Institute for Social and Economic Research (ISER) at the University of Essex, and Southern African Social Policy Research Insights (SASPRI) have launched a major research project in which tax-benefit microsimulation models for selected developing countries in Africa (Ethiopia, Ghana, Mozambique, Tanzania, Zambia) and also elsewhere (Ecuador and Vietnam) will be built in addition to those that already exist for South Africa and Namibia. Once ready, they can be used for analysing the impacts of different tax and benefit policy scenarios. The project is supported by UNU-WIDER, and based on joint research work with the three participating institutes and researchers from the countries for which the models will be built.

EUROMOD platform

The models will be based on the EUROMOD platform. EUROMOD is both a widely-used tax-benefit model for European countries, but has also been found to be an ideal platform with which to develop microsimulation models for other countries. Indeed, researchers at SASPRI in collaboration with the EUROMOD team have successfully built models using the EUROMOD platform for South Africa and Namibia.