Microsimulation Models for Fiscal Policies: CPB The Netherlands
Outline Ex ante analysis of fiscal reforms: MIMOSI Ex post analysis of fiscal reforms: MICSIM Consumers Challenges for the future 2/24
Ex ante analysis of fiscal reforms: MIMOSI 3/24
MIMOSI: the model MIMOSI: the official tax-benefit calculator of the Dutch goverment Data set: Income Panel of Statistics Netherlands Tax return data Approximately 100 thousand households Population weights Data set available to CPB, ministries and academics MIMOSI is shared with the Ministy of Finance and the Ministry of Social Affairs and Employment Documentation of workings of the model and output publicly available, but the model code is not publicly available 4/24
MIMOSI: the output Ex ante budgetary effects of fiscal reform proposals Ex ante redistributional effects of fiscal reform proposals Modal changes in disposable household income for subgroups Scatterplots of changes in disposable household income Change in Gini-coefficient of disposable household income Ex ante changes in effective marginal tax rates Ex ante changes in participation tax rates 5/24
Example scatterplot: cut in childcare subsidies Change in disposable household income (in %) -8-6 -4-2 0 2 4 6 8 20000 40000 60000 80000 100000 Disposable household income (in euro) Source: De Boer et al. (2015) 6/24
Example EMTR: Coalition Agreement 2012 I and II Effective marginal tax rate (in %) 70 60 50 40 30 20 10 0 0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 Density Base CA I CA 2 10 9 8 7 6 5 4 3 2 1 0 Density (in %) Source: CPB (2012) 7/24
Ex post analysis of fiscal reforms: MICSIM 8/24
MICSIM: the model MICSIM: structural model for labour supply Labour supply choices determined by: Budget constraint (MIMOSI) Preferences Data set for estimation of preferences: Labour Market Panel of Statistics Netherlands Administrative data and survey data (e.g. education, job search) Approximately 1.2 million individuals Panel data for 1999 2012 Population weights Data set available to CPB, ministries and academics Data set for simulations: Income Panel 9/24
... continued Behavioural responses structural model validated with quasi-experimental studies Simulate past reforms with structural model Compare simulated responses with quasi-experimental studies Structural model predicts the effects of past reforms well! MICSIM will be shared with the Ministy of Finance and the Ministry of Social Affairs and Employment Documentation of estimations, workings of the model and output publicly available, model code not publicly available 10/24
MICSIM: the output Behavioural effects of fiscal reform proposals Labour supply in persons Labour supply in hours Labour productivity per hour Ex post budgetary effects of fiscal reform proposals Academic papers Informal studies for policymakers: Policy Briefs (max 15 pp) Promising Policies series (books) 11/24
Example: labour supply elasticities women in couples 0.60 0.50 0.40 0.30 0.20 0.10 0.00 no children child 0-3 yrs child 4-11 yrs child 12-17 yrs child 18 yrs total extensive margin intensive margin Source: CPB (2015) 12/24
Example: quasi-experimental check childcare reform Structural model Diff-in-diff analysis Coefficient SE Couples with young. child 0 3 yrs Changes in levels Participation rate women 0.030 0.020 0.007 Hours worked per week women 1.185 1.222 0.223 Participation rate men 0.004 0.006 0.004 Hours worked per week men 0.075 0.509 0.237 Couples with young. child 4-11 yrs Participation rate women 0.017 0.022 0.007 Hours worked per week women 0.616 0.750 0.221 Participation rate men 0.001 0.003 0.004 Hours worked per week men 0.001 0.180 0.234 Source: Jongen et al. (2014) 13/24
Example: output table policies young parents Simulation Income dependent Childcare Income depend. combination credit subsidies child benefit Ex-ante impulse (in billion euro) 0.5 0.5 0.5 Changes in percentages Gini coefficient 0.01-0.01 0.47 Hours worked per week 0.16 0.20 0.29 Participation rate 0.13 0.14 0.26 Labour productivity per hour 0.04 0.03 0.04 Hours formal childcare 3 23 1 Knock-on effects (% of ex-ante impulse) 11 60 50 Source: Jongen et al. (2014) 14/24
Consumers 15/24
Consumers Government Many proposals: mostly by Ministry of Finance and Ministry of Social Affairs and Employment Recent example: 5 billion euro cut in taxes in 2016 Political parties Social Economic Council Trade unions and employers federations 16/24
Analysis of elections proposals Unique Dutch tradition since 1986 All major political parties in the Netherlands submit detailed election proposals to CPB for analysis CPB then analyses short- and long-run consequences Short-run ex ante budgetary effects Short-run effects on economy and disposable income Long-run effects on disposable income, employment and sustainability of public finances We use a number of models for this, including MIMOSI and MICSIM After the elections models are used for the Coalition Agreement 17/24
Publication: 1 month before the elections 1986 (15 pp) 2012 (454 pp) 18/24
Challenges for the future 19/24
Challenges for the future Open-source tax-benefit calculator Joint project with Leiden University For the period: 1980 present Publicly available Can work with different data sets Salience Matters for redistribution: 18% of households eligible for health care subsidy and rent subsidy in the Netherlands do not take it (Tempelman and Houkes-Hommes, 2016) May matter for behavioural responses (Chetty, 2015) 20/24
... continued Other changes than labour supply Taxable-income elasticity >> intensive-hours elasticity Also have to model e.g. tax avoidance and tax evasion Important for budgetary effects Important for thinking about optimal policy (e.g. Brewer, Saez and Shephard, 2010 vs. Aaberge and Colombino, 2013) Demand side Policy effects in a depressed labour market (Aaberge et al., 1995, Bargain et al., 2010) Endogenous labour demand and wages (Peichl and Siegloch, 2012, Colombino, 2013) 21/24
Thank you Questions or comments: e.l.w.jongen@cpb.nl 22/24
References Aaberge, R. and Colombino, U., 2013, Using a microeconometric model of household labour supply to design optimal income taxes, Scandinavian Journal of Economics, 115(2), pp. 449-476. Aaberge, R., Dagsvik, J., and Strom, S., 1995, Labor supply responses and welfare effects of tax reforms, Scandinavian Journal of Economics, 97(4), pp. 635-659. Bargain, O., Caliendo, M., Haan, P., and Orsini, K., 2010, Making work pay in a rationed labour market, Journal of Population Economics, 23(1), pp. 323-351. Brewer, M., Saez, E., and Shephard, A., 2010, Means-testing and tax rates on earnings. In Mirrlees, J. et al., editors, The Mirrlees Review - Dimensions of Tax Design, Oxford University Press, Oxford, pp. 202-274. Colombino, U., 2013, A new equilibrium simulation procedure with discrete choice models, International Journal of Microsimulation, 6(3), pp. 25-49. CPB, 2012, Effecten van het Regeerakkoord voor de marginale druk, CPB Policy Note, The Hague. 23/24
... continued CPB, 2015, Kansrijk Arbeidsmarktbeleid (Promising Labour Market Policies), CPB Book, The Hague. Jongen, E., Boer, H.-W. de and P. Dekker, 2014, MICSIM - A behavioural microsimulation model for the analysis of tax-benefit reform in the Netherlands, CPB Background Document, The Hague. Peichl, A. and Siegloch, S., 2012, Accounting for labor demand effects in structural labor supply models, Labour Economics, 19(1), pp. 129-138. Tempelman C. and A. Houkes-Hommes, 2016, What stops Dutch households from taking up much needed benefits?, Review of Income and Wealth, forthcoming. 24/24