1

BBVA Foundation workshop15-16 November 2004 MADRID

Aino SalomäkiDG: Economic and Financial Affairs

European Commission

MICROSIMULATIONAS A TOOL FOR THE EVALUATION

OF PUBLIC POLICIES

2

EX ANTE EVALUATION

DIFFERENT TYPES OF MODELS Static, dynamic Hypothetical, actual data on microunits Rules, behaviour MS MODELS ARE POWERFOOL PLANNING

TOOLS From micro calculations to aggregated results Flexibility (reg. varying objectives and instruments) Reveal policy dilemmas Promote rational and dispassionate debate Transparency, easy to understand ANALYSE CHANGES AND REFORMS

Details in isolation, interactions between and cumulative effects of different measures, total impacts

3

POLICY PERSPECTIVE

GOAL-ORIENTED ANALYSING TOOL NATIONAL OBJECTIVES Social and distributional objectives Budgetary costs Labour market behaviour, incentives EUROPEAN OBJECTIVES Focus on behavioural changes (more employment, more social cohesion) Evaluation of national policies against common

objectives National policy changes in the light of EU objectives

4

NATIONAL TAX-BENEFIT MODELS

Variety of tax and benefit reforms Illustrate the impacts on hypothetical cases Total cost estimates Distributional impacts Change in indicators (incentives, poverty) Behavioural impact Ex-post assessment (isolation) of reform impacts

5

FINNISH APPLICATIONSFINNISH APPLICATIONS Income tax reforms 1987, 1988, 1989 Student’s allowance reform 1992 Capital income tax reform 1993 Value-added tax reform 1994 Work incentive reform 1997-98 Annually: Tax expenditure calculations

Evaluation of tax-benefit changes proposed in annual budgets

Forecasting tax yields Impact of collective wage bargaining agreements Positive externality: Expertise in tax-benefit systems

6

MULTI-NATIONAL MODELS: MULTI-NATIONAL MODELS: COMPARISON OF TAX-BENEFIT COMPARISON OF TAX-BENEFIT POLICIES ACROSS COUNTRIESPOLICIES ACROSS COUNTRIES

SEVEN COUNTRIES STUDIES - pioneering policy comparisonsOECD-EU TAX-BENEFIT MODEL - Lisbon strategy and structural indicatorsEUROMOD - Invaluable source for the description and formalization of different national policies - Comparison of policies with actual income distribution data

7

PUBLICATIONSPUBLICATIONS

Employment benefits and social assistance in Seven European countries, the Netherlands 1995

Income benefits for early exit from the labour market in eight European countries, European Economy, Reports and studies, 1998:3

Remain or withdraw from the labour market? A comparative study on incentives, European Economy, Economic Papers No. 193, 2003

http://europa.eu.int/comm/economy_finance/publications/economic_papers/economicpapers193_en.htm

Indicators of unemployment and low-wage traps (marginal effective tax rates on labour), European Economy, Economic Papers No. 197, 2003

http://europa.eu.int/comm/economy_finance/publications/economic_papers/economicpapers197_en.htm ; also on the OECD web-site