Extended functionalities

What are extended functionalities?

A number of special purpose tools and extensions have been built for EUROMOD, with the aim of extending the functionalities of the core model. These tools can be classified in two types:

  • Add-ons: Add-ons are pieces of standard EUROMOD code (i.e. systems, policies, functions, etc.) which are not part of the standard tax-benefit calculations. The main reason for keeping them separate from the basic model is to hold the latter as clear and straightforward as possible. Examples of functionalities modelled through add-ons are the calculation of marginal effective tax-rates, changes in the labour market or tax compliance adjustments.
  • Plugins: Plugins are software components that extend the functionality of EUROMOD. While the core user interface concentrates on supporting the implementation, adaptation and running of countries' tax-benefit systems, plugins provide additional features like producing basic summary statistics, or generating hypothetical datasets.

Statistics Presenter

The Statistics Presenter plugin is an analysis tool that produces a fixed set of statistics based on EUROMOD output files. In particular, it offers aggregates for market incomes, taxes and benefits; distribution of income and demographic characteristics by deciles of equivalised disposable income; and inequality and at-risk-of-poverty indicators. It also provides aggregates and number of recipients/payers by decile for a variable specified by the user.

This plugin is included with the default installation of EUROMOD. You can find it under the "Applications" toolbar ribbon, inside the "EUROMOD plugins" group.

Hypothetical Household Tool (HHoT)

The Hypothetical Household Tool (HHoT) is a EUROMOD plugin for designing hypothetical households and generating data according to the chosen household characteristics. This hypothetical household data can then be used to estimate the effects of taxes and benefits on household disposable income, by normally running EUROMOD systems.

Traditionally, EUROMOD is used for analysing the distributive, labour market and budgetary impact of tax-benefit policies and policy changes. To do so, detailed and representative data on persons and households are required. With the HHoT plugin users can create their own hypothetical data, which allows them to better understand how policies work for households with specific characteristics, while giving them full control over the characteristics of interest (Gasior and Recchia 2019, external link to the Journal of Comparative Policy Analysis: Research and Practice website).

HHoT generates specified hypothetical household input datasets in the standard EUROMOD input data format, which can then be used with the EUROMOD software to perform tax and benefit microsimulations. The flexibility of the tool allows users to specify a broad spectrum of different hypothetical households. The specification of household composition and other characteristics is only limited by the scope of variables in EUROMOD input data. For example, three (or more) generation households can be included, as well as a variety of labour market statuses and income sources. HHoT allows users to compose, save, use and re-use their own database of hypothetical households.

The HHoT user manual has been published by the University of Essex as a EUROMOD technical note.

This plugin is included with the default installation of EUROMOD. You can find it under the "Applications" toolbar ribbon, inside the "Tools" group.

Policy Effects Tool (PET)

The Policy Effects Tool (PET) estimates the first-order effects of policies on household incomes. The tool is meant to assist with model validation (see EUROMOD Country Reports) and compares policies in place in two consecutive years, both in nominal and real terms.

This plugin is included with the default installation of EUROMOD. You can find it under the "Applications" toolbar ribbon, inside the "Tools" group.

There is an Advanced Policy Effects tool, available under request, which provides users with greater flexibility in PET analyses. In order to get access to it, please contact us.

Marginal Tax Rate add-on (MTR)

The MTR add-on allows computing marginal tax rates (MTRs) for all countries and policy years in EUROMOD. MTRs are “an indicator of the proportion of a marginal increase in earnings that is taxed away due to social insurance contributions, taxes and loss of benefit entitlement” (Jara and Tumino, 2013, external link to the International Journal of Microsimulation website). They are expressed in percentage and they usually vary between 0 and 100%. They are computed only for individuals declaring positive earnings and, therefore, they can be interpreted as a proxy of labour market incentives at the intensive margin of labour supply.

In short, the MTR Add-on complements the countries’ spines by adding some extra policies which allow running and storing the results of policy systems twice: first, by running baselines’ policies and, second, by rerunning them with increased earnings. Here it must be noted that earnings are increased in turn for each earner in the household. All the above is implemented in EUROMOD through a primary loop of 2 iterations and a secondary loop of as many iterations as members with positive earnings within the household. Results are stored individually and differences in household disposable income between the 2nd and 1st run are computed.

This add-on is available, as an extended functionality, with the latest version of the model. You can find it under the "Add-ons" toolbar ribbon.

More information about this add-on can be found in the following document: MTR Add-On Documentation.

Net Replacement Rate add-on (NRR)

The Net Replacement Rate add-on allows the user to estimate indicators of potential labour supply changes in the extensive margin, considering the influence of the tax-benefit system. In particular, it computes Net Replacement Rates (the ratio of out-of-work income over in-work income) and Participation Tax Rates (actual decrease/increase in disposable income from discrete changes in the working status).

This add-on is available, as an extended functionality, with the latest version of the model. It's compatible with the 2015-2020 systems for all countries. You can find it under the "Add-ons" toolbar ribbon.

More information about this add-on can be found in the following document: NRR Add-on Documentation.

Labour Market Adjustment add-on (LMA)

The LMA add-on is a EUROMOD tool that allows the user to change the labour market situation of individual observations, in order to adjust the market structure to the most recent information available, or to construct hypothetical labour market scenarios.

The add-on was initially developed for nowcasting, a microsimulation-based methodology for estimating changes in the income distribution over a period of time if up-to-date income microdata are not yet available. In this context the add-on is used to adjust the labour market situation of observations in the most recent EUROMOD input dataset, based on the most recent information available from the European Labour Force Survey or other available sources. Together with the modelled policy changes in EUROMOD, this allows to simulate the current income distribution and poverty risk taking policy and labour market changes into account. For more information on nowcasting see Leventi et al. (2017) (chapter 19 in Atkinson et al., 2017)

This add-on is available, as an extended functionality, with the latest version of the model (I3.0+). It runs for policy year 2020, on all 27 EU member states and with all input datasets (although only the 2018 EUROMOD input data has been tested). You can find it under the "Add-ons" toolbar ribbon.

A previous version of the LMA add-on is also available upon request. It only deals with some of the labour transitions available in the most recent version, but runs on all countries and policy years. In order to get access to it, please contact us.

More information about this add-on can be found in the following documents: LMA Add-on Documentation and Simulating labour market transitions in EUROMOD.

Tax Compliance Adjustment add-on (TCA)

Tax Compliance Adjustments add-on (TCA) is a EUROMOD tool that makes it technically possible to account for varying degrees of income misreporting and income tax compliance of different types of households in simulations for all 27 EU countries in a highly harmonised way. The use of the TCA add-on is highly flexible and can accommodate various needs of the user. It should be primarily seen as a technical device to sensitivity test EUROMOD core tax-benefit simulations under alternative assumptions on income misreporting and tax compliance, where the parameterisation of the add-on is chosen by the user. The add-on also includes estimates of self-employment income underreporting for 14 countries (Kukk, Paulus & Staehr, 2020, external link to the International Tax and Public Finance website), which can optionally be used.

This add-on is available, as an extended functionality, with the latest version of the model. It has been tested with EUROMOD version I2.0 (and model software 3.2.1) for 2017/2019 policy systems and 2015/2017 input datasets. You can find it under the "Add-ons" toolbar ribbon.

More information about this add-on can be found in the following document: TCA Add-on Documentation.

Indirect Tax Tool - version 3 (IITv3)

Indirect taxes represent about one third of total government revenues coming from the collection of taxes and social contributions in the EU. They also have a high incidence in household budgets, especially at the bottom of the income distribution. It is therefore of high policy relevance to account for indirect taxation when assessing tax-benefit reforms and welfare systems.

In collaboration with colleagues from the University of KU Leuven, the University of Essex and Praxis Center for Policy Studies, the Fiscal Policy Analysis Unit (B2) at JRC Seville is about to complete this project ("ITTv3") with the objective to expand EUROMOD to account for the simulation of indirect taxes. At this stage the tool covers 18 Member States and two policy systems (2010/2019). During 2021 this tool will be ongoingly tested and improved, as well as extended to cover all Member States.

Countries which are currently covered: BE, CY, CZ, DE, DK, EL, ES, FI, FR, HU, IE, IT, LT, PL, PT, RO, SI and SK.

This ITTv3 replaces the previous ITT-project (ITTv2) with several new features. Among others, this new tool allows to run tax reforms at a highly disaggregated level of consumption (in most cases at the commodity level, e.g. "Rice"). Also differently from the ITTv2, the ITTv3 does not rely on a EUROMOD plug–in. All the operations have been modelled inside of the EUROMOD spine, in a policy module called "tco_cc". The full integration aims at increasing the model’s transparency and ease of use, as it follows the EUROMOD modelling conventions and no additional knowledge is required to run a policy simulation including an indirect tax reform.

Overall, the ITTv3 modifies EUROMOD on three levels: 1) it expands the input dataset (with imputed consumption expenditure data at the household level from EU HBS), 2) it adds a new policy module to the spine, and 3) it expands the Statistics Presenter.

For tax reform simulations, three behavioral assumptions are allowed: constant income shares of consumption, constant expenditure shares and constant quantities, which correspond to different price and income elasticities. Full pass-through is assumed under the current setting, but a flexibilization of this assumption is being currently discussed.

More information about this project can be found in the following document: A new indirect tax tool for EUROMOD: Final Report.