Tax-benefit micro simulation model for Serbia (SRMOD) based on EUROMOD

platform: construction and first application

Jelena Zarkovic RakicFaculty of Economics and FREN, University of Belgrade

(with Mihail Arandarenko, Sonja Avlijas, Sasa Randjelovic and Marko Vladisavljevic)

Outline

Overview of SRMOD construction First application Plans

Building SRMOD: initiative

Construction of SRMOD initiated in October 2009 by the Foundation for the Advancement of Economics (FREN), a research institute at the Faculty of Economics (University of Belgrade)

Initiative came as a response to the growing need for ex ante public policy analysis in Serbia

Building SRMOD: initiative

Current reform of social assistance and announced personal income tax reform

SRMOD could improve policy makers’ capacity to assess budgetary effects of alternative tax and benefit policy solutions, as well as effects of these changes on distribution, inequality and poverty

Building SRMOD: first steps

European Center for Social Welfare World Bank project: to compile tax

and benefit policy rules for Serbia following the outline of the country chapters that OECD member states compile for the OECD’s Tax and Benefit model

Training from ISER consultants: Kate Wilkinson and Horacio Levy

Building SRMOD: selection of micro data set

Living Standards Measurement Survey (LSMS), conducted in 2007 by the Statistical Office of the Republic of Serbia in collaboration with the World Bank, was identified as the most reliable of all available surveys containing micro data on income and social programmes (www.worldbank.org/lsms)

Year 2007 also chosen as baseline policy year The LSMS database was adapted to

EUROMOD so that all variables were formatted and labelled in such a manner to suit EUROMOD rules

Building SRMOD: simulated policies

Tax and benefit policies simulated in SRMOD : Personal Income Tax – on employment income, self-

employment income, rental income, interest, dividend and lottery winnings

Social Security Contributions (SSC) – on employment income for full time and part time employment (on behalf of employer and employee), self-employment income, on income from agriculture, on unemployment benefit and maternity and child care salary compensation.

Unemployment benefit Social Assistance (MOP) Child Allowance Birth grant Maternity and child care salary compensation Caregiver allowance

Building SRMOD: validation

SRMOD validation: income taxes and SSC

SRMOD validation: social assistance benefit and child allowance

Administrative records (mil. RSD)

SRMODRatio (SRMOD /

Administrative data)Average wage (in RSD) 37,668 34,659 0.92 Personal income tax 8,284,791 6,649,044 0.80 - salary/wage tax 6,966,756 5,693,117 0.82 Social security contirbutions - total 20,901,550 25,034,197 1.20 Social security contirbutions - on full time employment income and unemployment benefits 20,901,550 19,944,627 0.95

SRMOD Administrative

records Ratio (SRMOD /

administrative records) SRMOD

Administrative records

Ratio (SRMOD / administrative records)

Social assistance (MOP) 53.444 50.848 1,05 274.347.719 253.897.376 1,08

Child Allowance 230.093 199.323 0,86 670.238.560 580.706.031 0,86

Expenditures (in RSD)Recipients (HHs)

SRMOD: first application

FREN’s research team commissioned by the World Bank to test effects of the new Draft Social Welfare Law on income and poverty outcomes

New Draft Social Welfare Law, to be adopted by the end of 2010, intends to increase coverage and improve design of the most important last resort social assistance program (MOP)

SRMOD: first application

New bill introduces changes in social assistance (MOP) eligibility criteria as well as parametric change to the equivalence scale.

MOP eligibility criteria to be relaxed for large families and households from rural areas

SRMOD: first application

We simulated all the changes envisaged in the new law but it was also necessary to disaggregate changes and see their separate impact on the coverage, average benefit amount and poverty statistics

Simulation results were disaggregated by number of children in HH, HH size and age groups

SRMOD: future

Integrating SMROD into EUROMOD Re-base using EU-SILC as input data (EU-

SILC for 2011 and 2012 confirmed in Serbia)

Update policies to EU-SILC data year Link to labor supply model Continue simulating important tax and

benefit policy reforms Inform and train people to use the model