Full-year adjustment for modelling COVID-19 policies in SOUTHMOD tax-benefit microsimulation models
This technical note presents a modelling approach used in Lastunen et al. (2021) where tax and benefit policies are scaled to reflect their actual duration during a single calendar year. It can be applied to tax-benefit microsimulation models implemented in the EUROMOD software. The method is particularly useful when evaluating the impact of discretionary policy measures adopted during the COVID-19 pandemic.
Tax-benefit microsimulation models typically simulate policies at a specific point in time, which is problematic when considering changes in policies over time, for instance over the course of the coronavirus pandemic. Using the standard point-in-time approach, only those policies that were in place at the specific cut-off date (e.g. July 2020) would be considered and, even if short-lived in reality, assumed to be effective throughout the whole calendar year.
The approach presented here applies ‘full-year adjustment’ to any policies implemented in 2020 that were in force for less than 12 months, ensuring that relevant benefit amounts and tax liabilities are scaled to reflect realistic payments during the year.