Building Tax-Benefit Micro-Simulation Model for Serbia (SRMOD): Construction & Application

1. Tax-benefit micro simulation model for Serbia (SRMOD) based on EUROMOD platform: construction and first application Jelena Zarkovic Rakic Faculty of Economics and FREN, University of Belgrade (with Mihail Arandarenko, Sonja Avlijas, Sasa Randjelovic and Marko Vladisavljevic)

2. Outline • Overview of SRMOD construction • First application • Plans

3. Building SRMOD: initiative • Construction of SRMOD initiated in October 2009 by the Foundation for the Advancement of Economics (FREN), a research institute at the Faculty of Economics (University of Belgrade) • Initiative came as a response to the growing need for ex ante public policy analysis in Serbia

4. Building SRMOD: initiative • Current reform of social assistance and announced personal income tax reform • SRMOD could improve policy makers’ capacity to assess budgetary effects of alternative tax and benefit policy solutions, as well as effects of these changes on distribution, inequality and poverty

5. Building SRMOD: first steps • European Center for Social Welfare • World Bank project: to compile tax and benefit policy rules for Serbia following the outline of the country chapters that OECD member states compile for the OECD’s Tax and Benefit model • Training from ISER consultants: Kate Wilkinson and Horacio Levy

6. Building SRMOD: selection of micro data set • Living Standards Measurement Survey (LSMS), conducted in 2007 by the Statistical Office of the Republic of Serbia in collaboration with the World Bank, was identifiedas the most reliable of all available surveys containing micro data on income and social programmes (www.worldbank.org/lsms) • Year 2007 also chosen as baseline policy year • The LSMS database was adapted to EUROMOD so that all variables were formatted and labelled in such a manner to suit EUROMOD rules

7. Building SRMOD: simulated policies • Tax and benefit policies simulated in SRMOD : • Personal Income Tax – on employment income, self-employment income, rental income, interest, dividend and lottery winnings • Social Security Contributions (SSC) – on employment income for full time and part time employment (on behalf of employer and employee), self-employment income, on income from agriculture, on unemployment benefit and maternity and child care salary compensation. • Unemployment benefit • Social Assistance (MOP) • Child Allowance • Birth grant • Maternity and child care salary compensation • Caregiver allowance

8. Building SRMOD: validation • SRMOD validation: income taxes and SSC • SRMOD validation: social assistance benefitand child allowance

9. SRMOD: first application • FREN’s research team commissioned by the World Bank to test effects of the new Draft Social Welfare Law on income and poverty outcomes • New Draft Social Welfare Law, to be adopted by the end of 2010, intends to increase coverage and improve design of the most important last resort social assistance program (MOP)

10. SRMOD: first application • New bill introduces changes in social assistance (MOP) eligibility criteria as well as parametric change to the equivalence scale. • MOP eligibility criteria to be relaxed for large familiesand households from rural areas

11. SRMOD: first application • We simulated all the changes envisaged in the new law but it was also necessary to disaggregate changes and see their separate impact on the coverage, average benefit amount and poverty statistics • Simulation results were disaggregated by number of children in HH, HH size and age groups

12. SRMOD: future • Integrating SMROD into EUROMOD • Re-base using EU-SILC as input data (EU-SILC for 2011 and 2012 confirmed in Serbia) • Update policies to EU-SILC data year • Link to labor supply model • Continue simulating important tax and benefit policy reforms • Inform and train people to use the model