Tax-benefit microsimulation models combine detailed coding of the legislation of taxes and benefits with representative household level data on incomes and expenditures to simulate individual and household tax liabilities and benefit entitlements in each country.
The models can be used to assess the extent to which policy reforms contribute to changes in poverty and inequality and to make comparisons over time and across countries. They can also be used to simulate the effect of proposed or hypothetical policy reforms and to assess the cushioning effect of taxes and benefits in the event of economic shocks or demographic changes.
Microsimulation models are regularly used by researchers and policy makers in high-income countries. However, such tools are seldom available in low- and middle-income countries, despite the need to assess the effect of taxes and benefits in view of increasing fiscal capacity to build up more sustainable social protection systems.
The SOUTHMOD project was launched in 2016 by UNU-WIDER to develop and encourage the use of tax-benefit microsimulation models for selected developing countries. The SOUTHMOD project currently hosts models for six African countries (Ethiopia, Ghana, Mozambique, Tanzania, Uganda, Zambia), as well as Vietnam and Ecuador.
The International Inequalities Institute (III) joined the SOUTHMOD project in 2022. Dr Xavier Jara will coordinate the maintenance and use of ECUAMOD, the tax-benefit microsimulation model for Ecuador, developed within the SOUTHMOD framework. He will also coordinate the development and use of new tax-benefit microsimulation models in three Latin American countries: Bolivia, Colombia and Peru.
As part of SOUTHMOD, the III becomes a partner of a major international collaboration involving UNU-WIDER, the Southern African Social Policy Research Insights (SASPRI), and researchers from the countries for which the models are built.
Open access and capacity building
All models developed under the SOUTHMOD project are based on the EUROMOD platform and are freely available for non-commercial use. To ensure cross country comparability, SOUTHMOD provides a common modelling framework based on standard rules to handle data and policy simulations (SOUTHMOD modelling conventions). The models are updated annually to capture regular changes in taxes and benefits in each country.
An important part of the project involves building capacity in low- and middle-income countries to encourage the use of microsimulation models for academic research and policy analysis.
The III will play a key role in organizing regular training for local researchers and policy makers in Latin America to expand the network of microsimulation users and to foster interaction between academics and government institutions in the region.