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 increasingly need to be 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 the EUROMOD team at ISER is working with UNU-WIDER and Southern African Social Policy Research Insights (SASPRI) on a major research project in which tax-benefit microsimulation models for selected developing countries in Africa (Ethiopia, Ghana, Mozambique, Tanzania, Zambia) and also elsewhere (Ecuador and Vietnam) are being built in addition to upgrading those that already exist for South Africa and Namibia.
The models – collectively known as SOUTHMOD – are based on the EUROMOD platform. EUROMOD is the tax-benefit microsimulation model for the European Union (EU), developed and managed by ISER, and now widely used for the analysis of the effects of policy and policy reforms in the 28 member states of the EU (see pages 2-3). The EUROMOD approach and software were developed to handle many different policy systems at the same time. This flexibility and structured approach also provides an ideal platform with which to develop microsimulation models for other countries. Indeed, researchers at SASPRI, in collaboration with the EUROMOD team, have successfully built and made extensive use of models using the EUROMOD platform for South Africa and Namibia.
At first sight the advantages of using the EUROMOD platform built to handle the complexities of taxes and benefits in EU countries might not be apparent. Most of the countries included in SOUTHMOD have embryonic (or non-existent) social protection and income maintenance systems, tax systems based mainly on indirect taxes and subsidies (which the EU EUROMOD does not cover in general), and household structures not commonly seen in EU countries or micro-data. There are three key reasons why EUROMOD-based tax-benefit models are highly relevant. First, EUROMOD’s adaptability, together with micro-data containing information on both income and consumption for most of the countries we are working with, allows for the incorporation of indirect taxes and some subsidies in the simulations, and for household characteristics to be represented appropriately.
Secondly, even if the SOUTHMOD models contain rather few and relatively minor policy instruments affecting small sections of the populations (again, compared with the EU case), this provides a compelling starting point for considering the design and implementation of new policy instruments with a larger or more effective anti-poverty and redistributive role.
Finally, the existence of a ready-made platform speeds up the construction process and facilitates comparability of the new models. Once they are ready the models will be used for analysing the impacts of different tax and benefit policy scenarios. Given they are using a common platform there will be scope for comparing the effect of similar scenarios across countries, as well as cross-country comparison in general.
A fourth key feature of the project is the central involvement of national teams from research and policy institutes in the countries concerned. It is they who are building the models and will make use of them, with the support of the UNU-WIDER, SASPRI and ISER teams. In addition, since some of the support activities are offered collectively, there is scope to encourage networking among the teams and countries, offering potential for learning about policy approaches from each other as well as the methods of policy simulation from EUROMOD.
Our own experience of this project is that knowledge exchange has flowed in all directions. As well as engaging with policy and data issues from countries previously unknown to us, we have learned of ways to make the EUROMOD platform more adaptable and flexible, and more user-friendly. This will benefit the users of the EU model and we also hope that the approach that we have taken with the SOUTHMOD countries can be extended to cover other countries in the developing world.