EUROMOD

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EUROMOD is a tax-benefit model, covering 15 Member States of the European Union. It calculates disposable income for each household in the dataset by using elements of income taken from survey data (e.g. employee earnings) combined with components that are simulated by the model (taxes and benefits) and provides estimates of the distributional impact of changes to personal tax and transfer policy, either at the individual country or EU-wide level. The instruments which are simulated in all countries are: income taxes, social insurance contributions, family benefits, housing benefits, social assistance benefits and other income-related benefits. Some aspects of social insurance benefits/pensions can also be simulated.

The basic output of EUROMOD is the micro-level change in household income as a result of national or EU-wide policy changes. This provides the basis for the calculation of estimates of aggregate effects on government budgets, distribution of gains and losses, differential impacts on specific groups, effective marginal tax rates, and of inter-country differences in the costs and benefits of policies.

EUROMOD relies on household micro-data from representative sources for each country, providing information on gross incomes by source and personal and household characteristics.^[1]

Result

Typical Model Applications:

Since EUROMOD is a static model, it is best-suited to the analysis of policies that have an immediate effect and which depend only on current income and circumstances. It is appropriate to simulate the impact of actual or proposed policy changes and to design policy to meet specific targets. It can also be used to examine the way tax and benefit systems react to other changes such as earnings growth or changes in unemployment.

Recent applications are:

Evaluation of the relationship between policy instruments such as child benefits or social spending and the level of poverty (e.g. child poverty) in the EU
Evaluation of the relationship between the scale of cash benefits and tax concessions targeted on children and child poverty
Analysis of implications for poor pensioners of setting a European Minimum Pension
Analysis of the impact of tax-benefit systems on low income households
Analysis of the distribution of net replacement rates.
Tax and benefit systems as fiscal stabilisers
An international comparison of the redistributive effects and progressivity of taxes
The impact of policies to "make work pay" in cross-national perspective
An international comparison of the effects of fiscal drag
Design of systems of family transfers for Southern Europe
An evaluation of the efficiency-equity trade-off in different types of welfare reform^[1]

Standard Model Specification:

Within EUROMOD each tax-benefit system is made up of individual "policies", the elementary collections of tax-benefit instruments such as income taxes, social insurance contributions and social assistance benefits. The "policy spine" is a list of policies indicating the sequence in which they apply in each national tax-benefit system.

At the lowest level is the tax-benefit "module", which performs the calculation of a certain part of the tax or benefit on each fiscal unit. Only the modules contain actual tax-benefit rules and thus represent the elementary building blocks of the tax-benefit system. All other levels are only necessary to structure these rules and apply them in the correct sequence.

Dynamic structure:

Static^[1]

Linkage between regions and countries:

Analysis can be conducted at the regional, national or EU15 level.

Main Model Results:

Measure of Household Disposable Income (HDI) (including wage and salary income plus self-employment income plus property income plus other cash market income and occupational pension income plus cash benefit payments minus direct taxes and social security contributions) or other variables needed for the particular analysis (either at household level or at the level of any identifiable group of individuals within the household). This allows for the calculation of first-round budgetary effects. Gainers and losers from reform, indicators of inequality and poverty and of work incentives before and after a reform
The output module computes quantile groups, inequality indicators, poverty indicators and summary statistics and tabulations for any variable in the output database.
The user can input the micro-level output from the model into an analysis package or their own program to carry out analysis according to their own specification.

Required technical infrastructure:

The programming language is C/C++. The input micro-data and the model's micro-level simulation results are stored in Microsoft Access. All parameter lists are stored as Microsoft Excel spreadsheet tables. The user requires access to standard Microsoft Office software only.^[1]

Structure of Input Data:

Data inputs were taken from the European Community Household Panel (ECHP) and national data sources such as national panel studies or household budget surveys.
In order to include indirect taxes a regression method was used to produce estimated parameters predicting expenditure shares for a set of 17 common categories of goods corresponding to the standard system of classification of goods and services used by EUROSTAT, using household budget survey data. This part of the model is still under development.
Indicators of risk of social exclusion were imputed into the EUROMOD database using parameters that were estimated on the basis of European Community Household Panel data. The indicators estimated cover the risks of exclusion in the fields of Living Conditions, Necessities of Life and Labour Market.
Another form of input data are the rules and policy parameters governing the tax benefit systems in each country for each year.

Model Extensions:

Numerous extensions have been carried out by individuals for particular purposes. Some of these are integrated into the standard model (and documented) as part of the ongoing development process.^[1]

Links to other Models, Projects, Networks:

MICRESA: Micro-level analysis of the European Social Agenda; EUROMOD is used to explore the impacts of social and fiscal policies on poverty.

Regional Scope:

EU-15^[1]

References

↑ ^1.0 ^1.1 ^1.2 ^1.3 ^1.4 ^1.5 JRC European Commission, IA Tools, supporting impact assessement in the European Commission [1]

Sutherland, H., ed. (2001), EUROMOD: an integrated European Benefit-tax model, EUROMOD Working Paper No.EM9/01.

[mod-1] 1.0 ^1.1 ^1.2 ^1.3 ^1.4 ^1.5 JRC European Commission, IA Tools, supporting impact assessement in the European Commission [1]

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