The Use of Hypothetical Household Data for Policy Learning: Comparative Tax‒Benefit Indicators Using EUROMOD HHoT

Abstract

Tax‒benefit microsimulation models are typically used to quantify the effect of specific policy changes on the income distribution based on representative microdata. Such analysis evaluates policies by considering how different tax‒benefit elements interact given personal, household and labour market characteristics. Using hypothetical household data instead helps address broader questions of policy design and systemic (cross-national) differences. This article introduces the Hypothetical Household Tool (HHoT) in combination with the microsimulation model EUROMOD to analyse European tax‒benefit policies from a comparative perspective. It presents a series of applications from social welfare analysis illustrating how hypothetical data can benefit comparative academic and policy research.

Keywords:

• hypothetical households
• comparative indicators
• European Union
• microsimulation
• social policy

Acknowledgements

The paper was funded by the Economic and Social Research Council (ESRC) through the Research Centre on Micro-Social Change (MiSoC) at the University of Essex, grant number ES/L009153/1. The Hypothetical Household Tool (HHoT) has been jointly developed at the University of Essex and the University of Antwerp as an application of the EUROMOD software. The development of the application was supported by the InGRID (Inclusive Growth Research Infrastructure Diffusion) project funded by the European Commission’s 7th Framework Programme under the ‘Capacities’ heading and involved 17 European partners. The authors are grateful to Tim Goedemé, Tine Hufkens, Chrysa Leventi, Kostas Manios, Natascha Van Mechelen, Olga Rastrigina, Holly Sutherland and Gerlinde Verbist for their work in developing HHoT and their comments to the report. We are furthermore grateful to our colleagues at ISER who provided valuable comments. The presented results are based on EUROMOD version H1.0+, EUROMOD software version 2.1.0 and HHoT software version v1.1.0. EUROMOD is maintained, developed and managed by the Institute for Social and Economic Research (ISER) at the University of Essex, in collaboration with national teams from the EU countries. We are indebted to the many people who have contributed to the development of EUROMOD. The process of extending and updating EUROMOD is financially supported by the European Union Programme for Employment and Social Innovation ‘Easi’ (2014‒2020). The results and their interpretation are the authors’ responsibility. Electronic supplemental material can be accessed at https://sites.google.com/view/katringasior/research/work-incentives

Supplemental data

Supplemental data for this article can be accessed here.

Notes

1. https://www.euromod.ac.uk/using-euromod/user-resources/hhotmanual-households.

2. http://www.oecd.org/els/social/workincentives.

3. http://www.sofi.su.se/spin.

4. Progressivity =$1-\frac{Disposablehouseholdincom{e}_{200}-Disposablehouseholdincom{e}_{100}}{Disposablehouseholdincom{e}_{100}}$.

5. Benefit entitlement is 6 months in IE, MT, LT, CY, SK, SI, PL; 3 months in NL, HU; 11 months in CZ; 9 months in BG.

6. The University of Essex together with the University of Antwerp is working on expanding the country models by providing enhanced simulations of various benefits (unemployment, housing/heating and parental leave benefits). Further plans include the visualisation of results.

Additional information

Funding

This work was supported by the Economic and Social Research Council (ESRC) [ES/L009153/1] and the European Commission’s 7th Framework Programme.

Notes on contributors

Katrin Gasior

Katrin Gasior is a researcher at the Institute for Social and Economic Research, University of Essex, working on comparative research on modern welfare states and their social security systems using tax‒benefit microsimulation models.

Pasquale Recchia

Pasquale Recchia is an Economic Analyst at the Bank of Italy, Directorate General for Economics, Statistics and Research, Rome. His main research interests are policy evaluation, microsimulation models, inequality and education.