Director’s view

Prof Matteo Richiardi

EUROMOD’s flexibility, both of approach and software, means that it can be adapted to shortcut the process of building tax-benefit models with potentially comparable outputs for any country or region This publication celebrates the advancing geographical reach and policy impact of EUROMOD, the tax-benefit microsimulation platform developed at CeMPA, and the platform now underpinning national models in over 40 countries

Since 1996, and with generous funding from the European Commission’s DG-EMPL, EUROMOD has been developed as a taxbenefit microsimulation model for the European Union, growing in size as the bloc itself has grown, with coverage extending to all EU member states.

The European Commission has come to rely so much on EUROMOD that it has decided to directly involve two of its branches – Eurostat and the Joint Research Centre (JRC) in Seville – in the update and development of the policies and datasets for the EU member states, taking full responsibility for these models from 2021 onwards, while the platform itself will be co-developed between JRC and CeMPA.

But EUROMOD is no longer just a platform for modelling the impacts of fiscal policy in the EU and its member states. EUROMOD’s flexibility, both of approach and software, means that it can be adapted to shortcut the process of building tax-benefit models with potentially comparable outputs for any country or region.

In recent years the EUROMOD platform has provided the technical infrastructure behind a brand new set of tax-benefit microsimulation models, beginning with the UK, and then expanding beyond Europe into the Global South. Thanks to funding from the Nuffield Foundation, we have built on the UK component of EUROMOD and improved its timeliness and regional coverage, among other things, reaching a large number of new users including local and devolved governments, parliament and devolved assemblies, public sector bodies, think tanks, research institutes and NGOs. Moreover, as part of the ongoing SOUTHMOD 2 project funded by UNU-WIDER, EUROMOD provides the ‘engine’ that powers microsimulation models for seven countries: Ghana, Ethiopia, Zambia, Tanzania, Mozambique, Ecuador and Vietnam. The same project has also seen updates to existing EUROMOD-powered models for South Africa (SAMOD 3 ) and Namibia (NAMOD 4 ), managed by our long-term collaborators, Southern African Social Policy Research Insights (SASPRI 5 ).

We have also been involved in the development of tax-benefit models for another six Latin American countries (Argentina, Bolivia, Colombia, Uruguay, Venezuela and Chile), as part of the LATINMOD project supported by CELAG (Centro Estratégico latinoamericano de Geopolítica) with funding by BANDES, the Venezuelan Economic and Social Development Bank, and other individual projects. CeMPA is also involved to various degrees in the development of taxbenefit models 6 in countries as diverse as Russia and Indonesia.

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3 4 5 6 https://www.iser.essex.ac.uk/research/projects/southmod-simulating-tax-and-benefit-policies-fordevelopment https://www.saspri.org/research/micro-simulation/samod/index.html https://saspri.org/SASPRI/research/micro-simulation/namod/index.html https://www.saspri.org/index.html A full list of the models based on the EUROMOD platform is available at https://www.microsimulation.ac.uk/euromod/models

This line of research on EUROMOD-powered tax-benefit models constitutes a first, fundamental pillar of CeMPA – the second pillar being the development of dynamic models to study the effects of policies in the longer run.

Over the following pages, examples of analysis from each of the SOUTHMOD, LATINMOD and EUROMOD family of models are showcased.

In a study covering six of the African countries included in SOUTHMOD, Katrin Gasior reviews the effect of taxes and benefits on income inequality, finding that (aside from South Africa) tax-benefit systems currently do very little to reduce poverty. But perhaps this is not surprising in a continent where poverty has traditionally been measured in terms of consumption rather than income and where formal employment is much lower than in the West. Nevertheless, as living standards increase, income-based measures of poverty and inequality will become more important – and so will the modelling of the effects of taxes and benefits.

Next, Xavier Jara provides a similar overview of the (modest but not uniform) impact of fiscal systems on reducing income inequality in Latin America. He does so using recently-developed microsimulation models for Argentina, Bolivia, Colombia, Ecuador, Peru, Uruguay and Venezuela. A particularly interesting application in this analysis is a policy swap where Uruguay’s personal income

I look forward to the consolidation of the new EUROMOD-powered taxbenefit microsimulation models of the Global South – they are in good hands! – and to the further expansion of the platform into Asia and beyond.

tax system is used to replace those in place in the other countries analysed, with varying redistributive effects.

Gemma Wright and colleagues provide a snapshot of work currently being undertaken in a different continent: the development of INDOMOD – a model for Indonesia – in Asia. Gemma also describes the evolving PITMOD project – a complement to the existing South African model, SAMOD, but which will instead run on anonymised individual-level personal income tax data which is held securely at South African Revenue Service (a project partner). As Gemma notes, there are major advantages to using administrative data as input data for existing microsimulation models, a practice that we are already seeing across several country models in the EU.

Coming back to the ‘old continent’, Iva Tasseva and Alari Paulus’s analysis explores the fiscal policy response across the EU to the 2007-8 financial crisis and subsequent Great Recession, looking at the response in terms of discretionary policy changes and automatic stabilisers – built-in policy responses to changes to market incomes and population characteristics. Previously, there has been limited empirical evidence focusing on the role of the latter in terms of redistribution after an income shock and the analysis finds that across the EU member states neither response – discretionary change or automatic stabiliser – was sufficient on its own to redistribute incomes but, acting in tandem, the two responses were able to effect reductions in income inequality.

Over the page, we hear from UNU-WIDER’s Jukka Pirttilä about the challenges in establishing SOUTHMOD and the reasons for choosing EUROMOD as the model platform. Also engaging in SOUTHMOD from its conception has been SASPRI – the institution behind the pioneering SAMOD and NAMOD model and expert facilitators (and evangelists!) for much of the EUROMOD-powered tax-benefit microsimulation modelling development currently going on across African and Asian countries.

Finally, CeMPA (and individual CeMPA affiliates) have been very active in applying tax-benefit expertise to analyse the distributional effects of the COVID-19 crisis in many countries. This is crucial at a time of a massive, global economic shock, that has prompted unprecedented policy responses. In the last contribution to this publication I review our COVID-related work, including a project with UNU-WIDER and SASPRI that looks at the impact of the crisis in low and middle income countries.

In drawing to a close, I would like to pay tribute to UNU–WIDER for its contribution to the growth of the SOUTHMOD family of models, both in terms of financial and intellectual support.For the future, I look forward to the consolidation of the new EUROMOD-powered tax-benefit microsimulation models of the Global South – they are in good hands! – and to the further expansion of the platform into Asia and beyond.