Research Paper Final Report Vii:1
Using the EU-SILC for Policy Simulation: prospects, some limitations and suggestions
01 Sep 2007
This paper explores the prospects for using the EU-SILC as the underlying micro-database for policy simulation across the EU. In particular it considers the issues to be addressed, and the advantages arising, from building a database from the SILC for the EU tax-benefit model, EUROMOD. Many of the issues that arise are also relevant for policy simulation models covering single nations. However, the great advantage of the EU-SILC for EUROMOD is that it potentially supplies the micro-data foundations for a model for the whole EU-25, thereby reducing the amount of effort that must be made in harmonising data from diverse national sources, in understanding the impact of remaining cross-country differences on model results, as well as in negotiating access to many datasets and ensuring that diverse access conditions are met.
Nevertheless, the case for adopting the EU-SILC as the database for EUROMOD is not entirely clearcut as the model has particular requirements for data input that are distinct from those that usually apply to policy-related analysis using the EU-SILC (or other sources of household micro-data) directly. These are discussed in section 2 of this paper. This is followed by a short summary of the perceived advantages of the EU-SILC over the existing database (section 3). In order to place our interest in exploiting the EU-SILC into context, these discussions are preceded, in section 1, by a summary of the added value from connecting a policy simulation facility such as EUROMOD to the EU-SILC. This is done by providing examples of the types of statistics, indicators and analysis that it can generate, which would not be possible with the EU-SILC alone.
The only way to establish the suitability of the EU-SILC as a EUROMOD database is to construct a trial database, compare its performance with existing data and take note of advantages and drawbacks that are encountered in practice. This is what we have done, using Spain as a case study. The EUROMOD database has particular requirements and the amount of transformation necessary from the original data is considerable. Section 4 first describes what was done for Spain. It then compares some social indicators calculated using incomes simulated by EUROMOD using EU-SILC with other sources. A further step simulates income under 2006 tax and benefit policies, providing estimates of risk-of-poverty, income inequality and incentives to work in the current year. Finally, we discuss an illustration of what would have happened to income in 2006 in Spain under an alternative policy regime.
Section 5 then notes in concrete terms the problems and challenges encountered in building the database from the EU-SILC, offering some suggestions for improvements and speculating on the issues to be addressed if EUROMOD (eventually) used EU-SILC for all EU-25. The final section concludes by summarising some specific recommendations for improvements to the EU-SILC that would aid its adoption as a policy simulation database, as well as outlining a plan for building on the case study.