The view beyond Europe: the SOUTHMOD project of UNU-WIDER

While microsimulation models have been routinely in use in high-income countries for decades, many developing countries have had access to much limited sets of analytical tools

At the same time, developing countries have to increasingly rely on their own tax revenues for financing of necessary developmental spending, including the introduction of basic social protection systems.

Therefore, it seemed to us at UNU-WIDER that building up tax-benefit microsimulation models, and initiating research on the basis of the newly-built tools, would a be timely and relevant research project that the institute should champion. This led to the introduction of the SOUTHMOD 7 project in 2015.

Why was EUROMOD chosen as a platform and the team maintaining it as a key collaborator? Several factors contributed to the choice. First, it was felt that microsimulation as carried out in EUROMOD was really meant to make modelling user friendly; something we thought would increase the likelihood the tool would be picked up by a varied set of users, not only academics. Second, the idea that the model and the material would be available free of charge for any non-commercial users was a must, given the ambition of the institute to offer open access to all its research. Third, as an international organisation, the idea of caring about comparability across countries, which was part of the EUROMOD genome, would cater well for cross-country learning. And finally, the fact that EUROMOD was already used as an example for modelling taxes and benefits outside of EU-countries, including in Africa by SASPRI 8 , demonstrated its capability and usefulness also for the wider audience.

Although we could piggyback on all the gained knowledge within the EUROMOD family, the project itself entailed a huge amount of work. Most of the challenges stemmed from the data side. While in Europe the model is underpinned by a harmonised household micro data set, the EU-SILC, African and other developing countries do not have the luxury of using a similar data source. The Living Standards Measurement Survey (LSMS) type of data sets that we use do share many similar features, but they still differ in many crucial ways when it comes to the details of key variables that the model requires. Another challenge was obtaining suitably disaggregated sector-level data for the purpose of external validation, that is, checking how the model performs in predicting key macro-level variables. This all meant that the comparability of the SOUTHMOD models, while improved very recently, naturally falls short of the level of the European models.

However, we would argue that the advantages of the decision to work with EUROMOD and the successes along the way clearly outweigh the challenges we faced. We have been impressed by the experience and know-how already embedded with the EUROMOD family, and the fact that all modelling innovations acquired there are directly available for us has been a huge advantage. We have been privileged to be able to put together fiscal policy experts from many developing and developed countries, and interesting research and analytical work has emerged on the basis of this collaboration. The current goals are to further support the use of the models in the existing countries, increase the country coverage, and via research activities push further the adaptation of tax-benefit microsimulation to the special circumstances of developing countries.

Prof Jukka Pirttilä

The advantages of the decision to work with EUROMOD and the successes along the way clearly outweigh the challenges we faced… we have been impressed by the experience and know-how already embedded