How does raising income tax affect government revenue? What are the costs and benefits of implementing a state pension? Tax-benefit microsimulation models provide knowledge for better policy-making and inclusive development. With the models the effects of different policy scenarios on poverty, inequality, and government revenues can be analysed and compared.
The 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. Tax-benefit microsimulation 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.
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.
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 Institute (SASPRI) launched a major research project in which tax-benefit microsimulation models for selected developing countries in Africa (Ethiopia, Ghana, Mozambique, Tanzania, Uganda, Zambia) and also elsewhere (Ecuador and Viet Nam) have been built in addition to those that already exist for South Africa and Namibia. 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.
The following SOUTHMOD models and the associated input data are freely available for non-commercial research use: ECUAMOD (Ecuador), GHAMOD (Ghana), MicroZAMOD (Zambia), MOZMOD (Mozambique), UGAMOD (Uganda) and TAZMOD (Tanzania). For the following countries, we can provide the models and the Stata do-files necessary to produce the underpinning input data set that corresponds to each model: Vietnam (VNMOD) and Ethiopia (ETMOD). You can apply for access here. Models for Namibia (NAMOD) and South Africa (SAMOD) are available from SASPRI.
The second phase of the research programme
The second phase of the SOUTHMOD project includes extending the country coverage of the models and adding new data on the existing models. Regular trainings of the national SOUTHMOD teams will continue and South-South learning is fostered. Capacity building shall be further eased through online training.
The second phase will generate research findings on the following questions:
- What is the impact of tax systems on informality?
- How to target the benefits?
- How important are in-kind benefits for the overall tax-benefit system?
Local research uptake on topical questions in different countries will also be encouraged.
The models are 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.
Watch this space
All papers, events, briefs, blog posts, and opportunities to engage relating to this project will be available on this webpage. Calls for research relating to this project will be made available in 2021.
For information on the first phase of the project read more here.
Improving capacities for tax and other domestic revenue collection is a key target of SDG 17. In addition, SDG 16 is dedicated to the promotion of inclusive societies with effective and accountable institutions. Furthermore, tax capacity is closely linked to the ability of governments to offer better public services to end poverty (SDG 1), reduce inequalities (SDG 10), and ensure sustainable economic growth (SDG 8). Good governance in the area of tax and social protection is a key factor in efforts to improve women and girls’ living standards as they are more dependent on efficient public service delivery (SDG 5).