the case of SWITCH Tim Callan Economic and Social Research Institute Overview Context the role of SWITCH S imulating W elfare and I ncome T ax CH anges A tour of the SWITCH model ID: 1033318
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1. Microsimulation modelling to inform policy debate: the case of SWITCHTim CallanEconomic and Social Research Institute
2. OverviewContext: the role of SWITCHSimulating Welfare and Income Tax CHangesA tour of the SWITCH modelIllustrative applications to policy issuesFuture potential
3. SWITCH and SILC: Informing policy debate and policymakersAnalysing the potential impact of tax and welfare policy reformson household disposable incomeson financial incentive to work faced by individualsOfficial post-budget “social impact assessment”/ “poverty proofing”Assessing cost, distributive and/or incentive implications of actual or potential policy changese.g., medical card, UHI, property tax, childcare
4. Areas investigated using SWITCH
5. Selected users of SWITCH research*=makes direct use of SWITCH model
6.
7. Editing a policy (1): Navigation
8. Editing a policy (2):Changing parameter values
9. Administrative data and household surveysDiffering strengths and weaknessesChoice of data source depends on the purpose of the analysisSILC could be seen as a “hybrid”Data gathered through household survey;And with permission of the respondents, who supply PPSNs, data supplemented with information from administrative records
10. SWITCH model: Background Microsimulation model:currently based on CSO’s SILC 2010 datasoon to be re-based using SILC 2013Database is adjusted to represent the 2016 populationRepresentative sample of the population (12,000 individuals)Simulates taxes & benefits to arrive at disposable incomeCounterfactual analysis: replacement rates, marginal effective tax rates, minimum wage
11. Example 1: Medical/GP Visit Cards SWITCH calculates assessable income based oncurrent incomeageliving alone/with family (if under 70)number of childrenhousing costsactual childcare costsNo travel to work costs in the underlying data (SILC)estimation procedure could be developed, but items covered capture most of the variation in assessable income
12. % of Tax Units with a GP Visit Card by Income Decile
13. Example 2: Does Work Pay? It is easy to construct examples of households where individuals face high replacement ratesA key issue is whether such examples are realistic or representativeDetailed microsimulation analysis of a nationally representative sample of households is needed to identify the nature and extent of problems in this areaand to explore policy options to address such difficulties
14. Employment Rate* by Replacement Rate Category, 2015*Employment Rate defined as EE/(EE+UE)
15. Distribution of Replacement Rates, Ireland 2015Rep Rate CategoryUnemployed on JA/JBEmployees % %>7018.316.2>8011.08.3>905.63.4>1002.81.4Est. Pop.163,0001,581,000
16. Impact of the Back to Work Family Dividend on Replacement Rates– first year in employmentReplacement Rate Category Unemployed on JA/JB with Children 2015 No BTWFD 2015 With BTWFD >70 39.231.6>80 24.216.5>90 12.88.7>100 6.64.8
17. Microsimulation: how does it work?Large scale nationally representative surveySpecify baseline policy, reform policyRead in detailed information for each individual/family/household e.g., income components, ages, childrenDefine relevant income for each scheme income tax, PRSI, welfare, medical/GP visit cardSimulate benefit to which entitled, or tax/PRSI/USC liabilitySummarise results along dimensions of interest
18. What can microsimulation tell you?Cost estimateOr how far will a given budget stretch?Profile of beneficiaries, and size of gain/lossWide range of dimensions availableIncome: disposable, gross, equivalisedDemographic characteristics: age, gender, family type, household typeSocio-economic characteristics: employed, unemployed, not in labour marketCan optimise design of scheme in light of initial findings – iterative process
19. Microsimulation: Some advantagesCalibrated to represent the next budgetary yearSimulate policies using the appropriate “policy unit” e.g., tax/welfare unit, PRSI unit=individual, medical card unit Can analyse policy impact at these levels and also at household levelUses current rather than annual incomecurrent income is the basis for welfare entitlements, medical cardpotential to use annual income as wellInformation on both recipients and non-recipients
20. Summing up.....Microsimulation methods can add valuable information for the analysis of potential policy changesRequires early engagement of policy makers with researchers, and building of capacityCrucially dependent on a nationally representative sample with detailed and high quality information on relevant variables for policyAdministrative data contributes substantially to the quality of the underlying data
21. Thank you for your attentionMore information at: www.esri.ie/switchQuestions welcome to:tim.callan@esri.ieorswitch@esri.ie