overview

main purpose

A static tax benefit microsimulation model, covering the EU Member States, used to assess the budgetary and distributional consequences of consolidated and prospective policy reforms.

summary

EUROMOD is a static tax-benefit microsimulation model. Originally maintained, developed and managed by the Institute for Social and Economic Research (ISER), since 2021 EUROMOD is maintained, developed and managed by the Joint Research Centre (JRC) of the European Commission, in collaboration with EUROSTAT and national teams from the EU countries. The project is financially supported by DG EMPL, DG ECFIN, DG TAXUD and DG REFORM.

EUROMOD covers all European countries in a consistent manner, allowing for flexibility of the analyses and comparability of the results. EUROMOD combines information on policy rules with detailed and representative micro-data on individual and household circumstances drawn from the EU Statistics on Income and Living Conditions (EU-SILC). The simulations cover a large part of the tax and benefit components of household disposable income, in particular direct taxes and non-contributory cash benefits. The components of disposable income which are not simulated are taken directly from the data. Additionally, a specific EUROMOD module allows performing simulations based on hypothetical household data, a synthetic set of microdata where family and labour market characteristics are defined by the user.

EUROMOD can be used for policy formulation or evaluation, to analyse the effects of actual and prospective changes in tax-benefit policies over time, studying for example their budgetary implications, the effects on poverty and inequality and the impact on work incentives.

A EUROMOD extension (Indirect Tax Tool) allowing the simulation of indirect taxes is currently under testing. The JRC intends to incorporate it to the public version of EUROMOD in the near future.

model type

Bottom-up Micro-simulation model

ownership

Co-ownership (EU & third parties)

European Union, Institute for Social and Economic Research, University of Essex. Between 2004 and 2018, EUROMOD was developed, managed, maintained and updated by the Microsimulation Unit of the Institute for Social and Economic Research, based at the University of Essex, with support and funding of the European Union. Since 2018, EUROMOD has been co-developed by the University of Essex and by the Joint Research Centre of the European Commission. The intellectual property rights, including copyright, on EUROMOD are jointly owned by the University of Essex and the European Union. The Joint Research Centre of the European Commission has taken over the sole responsibility for the further development, management, maintenance and update of EUROMOD as of January 2021. The transfer of EUROMOD has been a joint effort by DG EMPL together with DG ECFIN, DG TAXUD, DG REFORM, DG ESTAT and DG JRC.

licence

Licence type: Free Software licence

homepage

https://euromod-web.jrc.ec.europa.eu/

details on model structure and approach

For a complete overview of EUROMOD readers are invited to consult Sutherland and Figari (2013), "EUROMOD: The European Union Tax-Benefit Microsimulation Model", International journal of microsimulation, 6(1) 4-26". The paper is the main source of information for the following sections (Detail on EUROMOD structure and approach; Input and parameters).

EUROMOD is a static tax-benefit calculator that allows the simulation of tax liabilities and benefit entitlements for a representative sample of households and individuals in each EU Member State and the UK (up to 2020). The model is static and non-behavioural, in the sense that it does not take into account socio-demographic changes and behavioural responses of individuals. The scope of EUROMOD simulations includes Personal Income Tax, Social Insurance Contributions paid by employees, self-employed and employers and most non-contributory benefits. Contributory benefits (e.g. pensions) are usually not simulated because of lack of relevant information (e.g. contribution history) in the underlying data. Nevertheless, some contributory benefits such as unemployment benefits are simulated making use of assumptions where needed. For those not simulated, the values collected in the underlying data are used and included in the concept of disposable income.

Depending on when a country module was first introduced in EUROMOD, the first policy system included in the model varies from 2005 to 2007 (2011 for Croatia). All the following policy systems are included up to the current year (2021) with the exception of the UK, which is updated until 2020.

EUROMOD baseline simulations are validated and tested both at a micro level (i.e. case-by-case validation) and at macro level (comparing aggregate amounts and recipients/payers with official statistics). A similar process is applied to income distribution and poverty statistics. The results of the validation exercises are reported in the Country Reports (available on the EUROMOD web pages).

Although EUROMOD simulations usually assume full benefit take up and full tax-compliance, adjustments for benefit non take-up and/or tax evasion are simulated in a number of country modules. Such adjustments are modelled in a transparent way that can be activated or deactivated by users.

EUROMOD code is written in C# and compiled. Users use the model through a standalone user interface, programmed using Microsoft .net Framework.

See Sutherland and Figari (2013) for a complete overview of EUROMOD.

model inputs

EUROMOD input datasets are usually derived from the European Union Statistics on Income and Living Conditions (EU-SILC), as harmonised by EUROSTAT. In some cases the EU-SILC is enriched using variables contained in the national SILC surveys, which are the basis for the harmonised version. In some other cases the national SILC surveys are used directly. The EUROMOD input datasets include the following key inputs:

demographics at household and individual level
labour market characteristics
gross incomes from market and other income sources (i.e. pensions, public transfers and private incomes)

A network of teams of national experts also collects information on the policy rules in place in each country each year.

The original survey data undergo a process of transformation and imputation before being used as EUROMOD input dataset. In particular, a process of imputation aimed at “splitting” the aggregated benefit variables provided in EU-SILC is applied. The process is described in the EUROMOD country reports. In addition, variables are renamed to follow the EUROMOD naming conventions (aimed at improving cross-country comparability).

The income variables contained in a EUROMOD input dataset are uprated using specific uprating factors when the year to which the income variables refers to differs from the tax-benefit systems to be simulated.

Starting from 2021, EUROSTAT and JRC, with the agreement of the National Statistical Institutes, are gradually implementing a new data production workflow. It consists in EUROSTAT producing and distributing to National teams a new dataset called EUROMOD SILC Database (EMSD) containing the harmonised EU-SILC already enriched with selected variables form national SILC and information derived from the SILC production database (PDB). The new data workflow simplifies the process of accessing Nationals SILC variables and the dissemination of the EUROMOD input data among users.