Micro Analytic Simulation Models for Political Planning
by Hermann Quinke
The ever increasing complexity is a distinctive characteristic
of tax and transfer laws. It is therefore impossible to evaluate
proposed or enacted amendments without appropriate simulation
models. GMD has a long standing tradition in developing such models
and applying them in the context of the political decision making
process. The project MIKMOD continues this tradition, because
the demand for such models by the federal administration remains
high and because their development poses interesting research
problems.
MIKMOD focuses on the development and application of microsimulation
models for taxes and transfer programs and other types of models
that proved useful for the analytical tasks of the administration.
Microsimulation models are well suited for estimating the cost
of law changes ie the change of total program cost or tax revenue.
They are based on a projected representative sample of the relevant
population segment, the micro data base. These models are also
capable of estimating the distributive impact of the amendments.
For the German Federal Ministry for Education, Science, Research
and Technology, we still maintain and update regularly the static
micromodel BAFPLAN for the analysis of the federal training assistance
act (BAföG). BAFPLAN is one of the few microsimulation models
in Germany, which has been used in various versions on a regular
basis for over fifteen years. We have built a comparable model
for East Germany, because the income level and other socio-economic
characteristics in East and West Germany are and continue to be
very divergent.
To keep the forecasting errors within reasonable bounds the database
of BAFPLAN has to be replaced by a more timely sample of eligible
students on a regular basis. Also the student forecasts, underlying
the projection (ageing) of the sample, are regularly updated.
Experience with BAFPLAN indicates, that these models are of course
still prone to error, but that the forecasting errors are significantly
smaller than those of the more intuitive methods formerly used.
The Federal Ministry for Families, the Elderly, Women and Youth
has a special need for tools to analyse the economic conditions
of the elderly. To satisfy these needs GMD developed AsA (Analysesystem
Alterssicherung), a comprehensive model for simulating the formation
of old-age income and its levying with social security contributions
and taxes. It has been used extensively in the discussion about
the radical change in the taxation of old-age income as well as
for analysing the reform of the core pension insurance (Gesetzliche
Rentenversicherung).
AsA consists of two components. One component comprises a classical
static microanalytical simulation model in which specific variants
of income-tax and social contributions are specified and the incomes
of a representative sample of persons receiving old-age income
are exposed to these variants. A common data base has been developed
for the Federal Ministry for Families, the Elderly, Women and
Youth and the Federal Ministry of Finance, derived from a survey
by Infratest. The second component of AsA is a typical case model.
It allows for analysing the generation of old-age income depending
on individual biographies and the membership of an individual
in one or more of the different systems providing old-age income.
Due to the particular usage of AsA in the policy making process
special emphasis has been put on the parametrization of the institutional
specifics in order to speed up the analysis of the economic effects
of proposed legislative changes.
For the same ministry we developed APF, a decision support system
for analysing direct and indirect transfers to families with dependent
children. Like AsA it contains an elaborate typical case model,
which is able to analyse the impact of direct and indirect taxation
as well as the effect of all major transfers on the disposable
income of families, seen as typical by the user. It also comprises
a micromodel for estimating the cost of transfers to families
with children. Because stringent data protection laws prohibit
the access to a sample of tax returns for this ministry, the latest
income and expenditure survey is used as the database. This survey
had to be adjusted to key tables of the income tax statistic to
reflect fully the income distribution of families. APF is the
main analytical tool of the ministry in the ongoing discussion
about public transfers to families.
The personal income model of the German Federal Ministry of Finance
is based on a stratified sample of 123 thousand income tax returns,
which was drawn and updated by MIKMOD. This model provides detailed
analysis of changes in personal income tax. In order to estimate
the distributive effects of decreasing income taxes and increasing
indirect taxes, especially energy taxes, MIKMOD imputed the consumption
pattern of all tax units in the sample by matching the income
and expenditure survey and the sample of tax returns.
Please contact:
Hermann Quinke - GMD
Tel: +49 2241 14 2727
E-mail: quinke@gmd.de
