As SIMPL as that: Introducing a Tax-Benefit Microsimulation Model
for Poland
Olivier Bargain (University College Dublin)Olivier Bargain (University College Dublin)
Leszek Morawski (University of Warsaw)Leszek Morawski (University of Warsaw)
Michal Myck (DIW-Berlin)Michal Myck (DIW-Berlin)
Mieczyslaw Socha (University of Warsaw)Mieczyslaw Socha (University of Warsaw)
OutlineOutline
1. Introduction2. Microsimulation idea
3. SIMPLa) Income data and data adjustmentsb) Simulated variablesc) Calibrationsd) Validation
4. Examples of applications5. Research papers using SIMPL6. Comments, conclusions and ...
IntroductionIntroduction
1. 1. IntroductionIntroduction2. Microsimulation idea
3. SIMPLa) Income data and data adjustmentsb) Simulated variablesc) Calibrationsd) Validation
4. Examples of applications5. Research papers using SIMPL6. Comments, conclusions and ...
IntroductionIntroduction
aa tax and benefit tax and benefit microsimulation microsimulation modelmodel - a computer program that combines information about households with tax and benefit rules in order to simulate hypothetical disposable income for households or families.
a hypothetical disposable income - a sum of declared work income and benefits to which a household is eligible on the basis of its characteristics and work incomes
OutlineOutline
1. Introduction2. Microsimulation idea2. Microsimulation idea
3. SIMPLa) Income data and data adjustmentsb) Simulated variablesc) Calibrationsd) Validation
4. Examples of applications5. Research papers using SIMPL6. Comments and conclusions
Microsimulation ideaMicrosimulation ideaOrcutt Guy (1957), A new type of socio-economic system, Review of Economics and Statistics, 39(2), 116-123
„Existing models of our socio-economic system have proved to be of rather limited predictive usefulness. This is particularly true with respect to predictions about the effects of alternative governmental actions and with respect to any predictions of a long-range character. It is even the case with respect to very short-run forecasting.
(...) It is also true, but not so widely noticed, that current models of our socio-economic system only predict aggregates and fail to predict distributions of individuals, households, or firms in single or multi-variate classifications.”
„However, existing models of socio-economic systems are neither built in terms of decision-making units (ie. individuals, households, and firms) nor are they well adapted to making use of knowledge about such units.”
Microsimulation ideaMicrosimulation ideaThis paper represents a first step in meeting the need for a new type of model of a socio-economic system designed to capitalize on our growing knowledge about decision-making units. Many more steps will be required and the labors of many individuals will be needed.
Nevertheless, it seems reasonable to claim that models of the type suggested in this paper could perform a useful function, by facilitating and improving predictions about aggregative aspects of our socio-economic system, by facilitating and improving testing of hypotheses about behavior of individuals, households, and firms, and by furnishing guidance in the selection of research efforts.
The most distinctive feature of this new type of model is the key role played by actual decision-making units of the real world such as the individual, the household, and the firm. In each time period, some types of behavior
Microsimulation ideaMicrosimulation ideaThis new type of model consists of various sorts of interacting units which receive inputs and generate outputs.(...)
The units of this new type of model may, if desired, be large aggregates such as markets or industries, but in general they are elemental decision-making entities such as individuals, families, firms, labor unions, and governmental units.(...)
An input into a unit is anything which enters into, acts upon, or is taken account of, by the unit. Inputs thus include what are commonly called economic inputs, but the concept is broader since they may include such things as rainfall, information, social pressures, age, etc. Inputs may have been produced as previous outputs of other units or they may derive from the physical environment.(...)
An output from a unit is anything which stems from, or is generated by, the unit. It thus includes economic outputs, but may also include such things as expression of opinions, actions of all sorts, birth of a child, marriage, divorce, location, and death.
Microsimulation ideaMicrosimulation ideaThere are a variety of outputs which are possible for each type of unit in the model. The operating characteristics of any unit are equations, graphs, or tables which either determine outputs or the probabilities of possible outputs by the unit as a function of the previous inputs into the unit. Operating characteristics are, in general, re-garded as stable aspects of units.
Microsimulation ideaMicrosimulation idea
Gross wage and self-employment income
- employers’ social security contributions- employees’ social security contributions
= Wages before taxation+ other work income (fringe benefits etc.)+ other taxable incomes (rents, capital income, ...)= Total taxable income
Total taxable income
- income tax= Net Income+ Family based social assistance + Social Assistance+ Housing Benefit
= Disposable Income
Module 1:Social Security Contributions
Module 2:Income Tax
Module 3:Family benefits
Module 4:Social Assistance
Module 5: Housing Benefit
The model database
Microsimulation ideaMicrosimulation idea
Gross wage and self-employment income
- employers’ social security contributions- employees’ social security contributions
= Wages before taxation+ other work income (self-employment income, fringe benefits etc.)+ other taxable incomes (rents, capital income, ...)= Total taxable income
Total taxable income
- income tax= Net Income+ Family based social assistance + Social Assistance+ Housing Benefita
= Disposable Income
Module 1:Social Security Contributions
Module 2:Income Tax
Module 3:Family benefits
Module 4:Social Assistance
Module 5: Housing Benefits
The model database
OutlineOutline
1. Introduction2. Microsimulation idea
3. SIMPL3. SIMPLa) Income data and data adjustmentsb) Income data validationc) Simulated variablesd) Calibrationse) Validation
4. Examples of applications5. Research papers using SIMPL6. Comments and conclusions
DataData
Household Budget Survey (HBS) 2003 & 2005 1. about 36 000 households & more than 100 000 individuals. 2. groups excluded from the HBS :
individuals in long-term care institutions, prisoners, students in boarding schools or student dorms, soldiers living in the barracks.
SIMPL database for 20051. 34 520 households representing 37 289 285
people,2. Groups excluded from the SIMPL database
individuals from households with more then 8 people, or
individuals from households with more then 5 families.
IncomesIncomes
work income1. permanent income2. temporary income 3. self-employment income4. farmers’ income
replacement income1. old-age pension2. disabilityy pension 3. family pension4. pre-retirement pension 5. maternity benefit6. social pension7. alimony payment
financial income 1. rents 2. investment income
contributory benefits1. rehabilitaton, sickness and funeral benefits
IncomeIncome AdjustmentsAdjustments
Net to gross conversion
Rescaling the incomes in the top centiles for permanent employees and the self-employed so that the average income in these centiles matches that in the MF data
Expected farmers’ income based on a linear model of the log of farm income.
IncomeIncome datadata validationvalidation
income from permanent work
SIMPL Official data (SY 2006, tab. 4(166))
female (mn) 4 641 4 506
male (mn) 4 981 5 038
total 9 622 9 543
income from permanent work
Average monthly gross wage (pln)
SIMPL 1 933
Official data 2 195
IncomeIncome datadata validationvalidation 20052005
Table A2 Principal income sources and income recipients in SIMPL - 2005.
SIMPL Official stats.
SIMPL Official stats.
SIMPL Official stats.
Permanent salary income 18 646 20 768 9.6 9.5 1 933 2 195 MF
Temporary salary income 559 1 656 0.8 0.9 701 1 795 MF
Self-employment income 3 661 1 581 1.4 1.3 2 586 1 195 GUS
Retirement pension 7 057 6 453 5.8 5.4 1 221 1 186 ZUS
Pre-retirement pension 469 452 0.6 0.5 829 840 ZUS
Invalidity pension 1 724 2 067 2.3 2.3 747 882 MG
Unemployment benefit 259 279 0.3 0.4 743 752 ZUS/KRUS
Maternity benefit 144 90 0.1 0.1 1 283 861 ZUS
Family pension 1 049 1 536 1.6 1.4 672 1 108 ZUS
Source of validationmln PLN/monthIncome source
Amounts No. recipients Monthly average/recipient
ValidationValidation 20052005
Table A3 Aggregate validation: tax and social security contribution - 2005
SIMPL Official stats.
SIMPL Official stats.
SIMPL Official stats.
Employees’ SSC 4 088 3 976 11.51 11.04 355 360 ZUS
Permanent work income 3 353 3 486 9.65 9.46 347 368 ZUS
Temporary work income 65 84 0.60 0.33 109 255 ZUS
Self-employment income 641 390 1.15 1.15 558 339 ZUS
Maternity replacement income
29 17 0.11 0.10 257 160 ZUS
Employers’ SSC 3 832 3 986 10.4 9.9 370 403 ZUS
Permanent work income 3 735 3 884 9.6 9.5 387 410 ZUS
Temporary work income 65 84 0.6 0.3 109 255 ZUSMaternity replacement income
32 19 0.11 0.10 286 177
Income Tax 2 478 2 868 19.09 23.27 130 123 ZUSHealth insurance 2 271 2 592 19.08 19.93 119 130 NFZ
Source of validationMln PLN/monthIncome source
Amounts No. individuals (mln) Monthly average/individual
SimulatedSimulated benefitsbenefits
Model name Type
Description
Nursing Allowance (NA) FB Not means tested benefit for disability.
Family Allowance (FA) FB Means tested child benefit
Parental leave allowance (PLA)
FB Means-tested benefit for voluntary parental leave.
Supplement for child birth (SCB)
FB Lump sum for birth or adoption.
Supplement for lone parents (SLP)
FB Means tested supplement for bringing up a child alone and the loss of the right to unemployment benefit.
Supplement for large family (SLF)
FB Supplement for third and subsequent children.
Supplement for education of disabled child (SEDC)
FB Supplement for education and rehabilitation of disabled child.
Supplement for starting the school year (SSS)
FB Supplement for education expenses.
Nursing Benefit (NB) SA
FB Means tested allowance for parents voluntarily on leave to care for disabled children.
CalibratedCalibrated benefitsbenefits
Social Assistance1. Permanent SA (simulated)2. Temporary SA (calibrated)
a) Probit model of receiving TSAb) The threshold calibration to get the correct number of recipients
3. Special Circumstances SA (not simulated)
Housing BenefitHousing Benefit (calibrated) (calibrated)1. imputed social rent cost per square meter by
region2. ceiling on the value of housing expenditure
per person at the 75th percentile of housing expenditures per person in the data
BenefitsBenefits validationvalidation 20052005
SIMPLOfficial
stats. SIMPLOfficial
stats. SIMPLOfficial
stats.
Housing Benefit (HH) 212 103 1.61 0.76 131.3 135.1 GUSSocial Assistance system MSPSocial Assistance (FAM) 113 88 0.46 0.44 244.9 199.6a) permanent SA 69 43 0.16 0.14 432.9 311.6b) temporary SA 43 45 0.30 0.30 144.7 148.7 - guaranteed TSA 35 38 0.30 0.30 115.3 126.0 - municipal TSA 9 7 0.30 0.30 29.5 22.7Social Pension (FAM) 67 114 0.16 0.24 419.0 478.0 MSPNursing Benefit (FAM) 17 29 0.04 0.07 420.0 420.0 MSPFamily Benefits MSP/GUSFamily Allowance
family 293 238 3.28children 6.44 5.19 45.5 45.8
Supplement for lone parent (FAM) 310 126 1.82 0.71 170.4 175.7
Supplement for large families 19 13 0.79 0.77 23.9 16.7
Supplement for education and disabled child (CH)
13 20 0.20 0.30 67.0 66.6
Supplement for starting the school year (CH)
25 21 3.27 3.00 7.5 7.2
Supplement for child birth (CH) 9 11 0.21 0.26 41.9 41.7Parental Leave Allowance (FAM) 96 56 0.24 0.14 400.0 403.3Nursing Allowance (IND) 102 93 0.71 0.64 144.0 144.2 ZUSDisposable income (HH) 2 519 2 015 MG
Source of validationmln PLN/monthIncome source
Amounts No. recipients (mln) Monthly average/individual
OutlineOutline
1. Introduction2. Microsimulation idea
3. SIMPLa) Income data and data adjustmentsb) Simulated variablesc) Calibrationsd) Validation
4. Examples of applications5. Research papers using SIMPL6. Comments and conclusions
ApplicationsApplicationsResearch projects for the Ministry of Labor and Social Policy „Using microsimulation model as a tool supporting labor market analysis”1. Static effects of tax and benefits reforms2. Building a labor supply model for Poland3. Labor supply effects of tax and benefit reformsImproving the Capacity and Usability of EUROMOD (I-CUE) (6th Framework Programme)
EUROMOD is a tax-benefit microsimulation model covering all 15 (pre-May 2004) Member States (MS) of the EU
It enables research on the effects of policies and policy reforms that have an impact on incomes, poverty, inequality and social inclusion
The aim of I-CUE is now to re-design and up-grade EUROMOD in light of theenlargement lessons learned from operating and using the first prototype version.
Budget constraintsBudget constraintsComponents of disposable income – a
single person without child
050
01
000
1 50
02
000
50 550 1050 1550 2050Gross wage
PLN
Net wage Family BenefitsHousing Benefit Temporary Social AssistanceIncome Criterion
Components of disposable income– a couple with two children
050
01
000
1 50
02
000
50 550 1050 1550 2050Gross wage
PLN
Net wage Family BenefitsHousing Benefits Temporary Social AssistanceIncome Criterion
Effective Marginal Tax Rate – a single person
0%
20%
40%
60%
80%
100%
0 1 000 2 000 3 000 4 000 5 000 6 000 7 000Gross wage
without child two children
w
DIEMTR
1
Static reformsStatic reformsReform SSI - Reform SSI - disability social security contribution paid by disability social security contribution paid by
employee is lowered from 6.5% to 4.5%employee is lowered from 6.5% to 4.5%.
Reform PIT - Reform PIT - the personal income flat tax system with the rate the personal income flat tax system with the rate of 18%of 18%..
Base system
Reform SSI
Reform PIT
Total cost (mln pln/year ) 3 900.6 6 705.1 Poverty rate (%) 18.61 18.14 18.43
Poverty rate - the proportion of individuals living in households with income below 60% of the equivalised median income in the base system
Static effectsStatic effects
PIT4: the flat tax rate of 18% with all other parameters of the tax and benefit system unchanged PIT5: the flat tax rate of 18% and removal of the universal tax credit of 530 zlotys per year
IntroductionIntroduction
1. Introduction2. Microsimulation idea
3. SIMPLa) Income data and data adjustmentsb) Simulated variablesc) Calibrationsd) Validation
4. Examples of applications5. Research papers using SIMPL6. Comments and conclusions
Research papersResearch papers1st General Conference of International Microsimulation Association
1. Morawski L., Myck M., Nicińska A., Using microsimulation model to get things right: a wage equation for Poland
2. Bargain O., Morawski L., Myck M., Socha ., SIMPL: A Microsimulation model for Poland
Working Papers 1. Bargain O., Morawski L., Myck M., Socha ., I-CUE Feasibility Study-Poland, EUROMOD ...2. Bargain O., Morawski L., Myck M., Socha ., As SIMPL as that: Introducing a Tax-Benefit
Microsimulation Model for Poland, IZA Discussion Paper 2..., 2007 (also as SIMPL DP1)3. Haan P., Morawski L., Myck M., Taxes, benefits and financial incentives to work: Great
Britain, Germany and Poland compared, SIMPL Discussioin Paper 2, 20074. Haan P., Myck M., Safety net still in transition: labour market incentive effects of
extending social support in Poland, SIMPL Discussioin Paper 3, 20075. Myck M., Mimicking an informal wealth test with a wealth-test model: SIMPL: 2003 &
2005
Future ...Future ...
Potential current involvment (2007/2008)a) Country report for Poland (I-CUE project, untill the end of April 2008)b) Strategies to support children in Poland (I-CUE project)c) SIMPL development (SIMPL project, 2008)
Future projectsa) Economic risks and the ageing process – a comparative view on Germany and Poland (joint project with DIW from Berlin)b) EUROMOD-I3 (FP7 project, 2009-2013)c) close cooperation with the Ministry of Labour and Social Policy
