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TAXBEN: the IFS’ static tax and benefit micro-simulation model

TAXBEN: the IFS’ static tax and benefit micro-simulation model. Mike Brewer Programme Director, Direct Tax and Welfare team Institute for Fiscal Studies, London, UK. What is TAXBEN?.

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TAXBEN: the IFS’ static tax and benefit micro-simulation model

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  1. TAXBEN: the IFS’ static tax and benefit micro-simulation model Mike Brewer Programme Director, Direct Tax and Welfare team Institute for Fiscal Studies, London, UK

  2. What is TAXBEN? • A static tax and benefit micro-simulation model of taxes on personal incomes, local taxes, expenditure taxes, and entitlement to benefits and tax credits that operates on large-scale, representative, household surveys • Mainly used for analysing tax and benefit changes • cost to government, winners and losers, impact on income distribution and work incentives • Originates from early 1980s; largely unchanged since mid 1990s. (http://www.ifs.org.uk/wps/wp1995.pdf) • Written in Delphi (a form of Pascal) • Can be run through a front-end, but also called directly from (eg) Stata; usually use TAXBEN to produce Stata datasets • Not used by outsiders; programme used and maintained by small team of researchers (economists)

  3. Strengths • Of tax and benefit microsimulation modelling: • Model interactions between taxes and benefits • Results are “representative”, and can be produced for sub-groups • Of TAXBEN, compared with other tax and benefit microsimulation models: • Very detailed representation of taxes and benefits • Very easy to programme hypothetical taxes and benefits • Kept up to date, and consistent over time (since 1975) • TAXBEN runs on generic dataset, which can be derived from many household surveys (FES/EFS, FRS, BHPS, ELSA, LFS) • Very good at analysing work incentives • Easy to calculate net income at arbitrary wage-hours points (eg for discrete choice labour supply modelling) • At observed earnings, calculates hours-of-work/net-income frontier and calculates summary measures of financial work incentives

  4. Achievements • Recent outputs • Abolition of 10p tax band (www.ifs.org.uk/bns/bn77.pdf) • Child poverty in 2010/11 (www.ifs.org.uk/comms/comm108.pdf) • Income distribution for 65+ from 2002 to 2017 (www.ifs.org.uk/comms/comm103.pdf) • Evaluation of WFTC using structural labour supply model (Labour Economics 13(3) pp699-720) • Key strategic achievements • Accurate representation of budget constraint has enabled research into labour supply • Keeps government honest when discussing personal tax and benefit changes • Improved quality of public debate about personal tax and benefit changes, and thereby improved policy-making

  5. Challenges • Conceptual challenges in tax and benefit modelling • Limited by quality of underlying household survey • Modelling entitlement to disability benefits, contributory benefits and state pensions; take-up of means-tested benefits • Employer NICs and incidence • Relating TAXBEN net income to “actual” net income in HBAI • Practical challenges • Maintenance • Not fast enough for all research applications, and so other “tax and benefit calculators” exist at IFS • Strategic challenges • Reminding outsiders of its limitations (it’s merely a fancy calculator...) • Not available for outsiders to use • Transparency/replicability/verification • IFS “monopoly” on personal tax and benefit analysis

  6. End

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