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: 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.
  • Applications: 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, applications provide additional features like producing summary statistics or generating hypothetical datasets.

All the extended functionalities listed below, except the Indirect Tax Tool, are available publicly in all EUROMOD releases. Add-ons can be found in the "Add-ons" toolbar ribbon, while the rest of the tools are available under the "Applications" toolbar ribbon.

EUROMOD statistics

Under the name EUROMOD statistics, EUROMOD provides two tools for obtaining statistical indicators: the Statistics Presenter and the In-depth Analysis tool. The Statistics Presenter generates fixed sets of statistics from EUROMOD output files, offering aggregates and distributional indicators for incomes, taxes and benefits, including inequality and poverty indices. The results are displayed on screen and can be saved in Excel format. The In-depth Analysis tool is an advanced version of the Statistics Presenter that offers a set of customizable tables for analysing tax-benefit reforms. Users can customize variables for analysis, breakdown variables, target populations and indicator parameters. Preferences can be saved and loaded for future calculations. The tool was developed as part of a joint project between the Greek Ministry of Finance and the Joint Research Centre, funded by the European Commission's Structural Reform Support Programme.

More information available in the built-in help of the tools.

Hypothetical Household Tool (HHoT)

The Hypothetical Household Tool (HHoT) is a plugin for EUROMOD that enables the creation of hypothetical households and the generation of corresponding data based on selected household characteristics. This data can be utilized to assess the impact of taxes and benefits on household disposable income through EUROMOD systems. By allowing users to design their own hypothetical data, HHoT grants a deeper understanding of policy dynamics for households with specific attributes, while providing full control over the variables of interest. The tool generates customized datasets in the standard EUROMOD input format, accommodating a wide range of household compositions, labor market statuses, and income sources. Users can create, save, use, and reuse their own database of hypothetical households using HHoT.

More information available in the "HHoT user manual" (see Model documentation) and in Gasior and Recchia (2019).

Policy Effects Tool (PET)

The Policy Effects Tool (PET) estimates the first-order effects of tax-benefit policies on household incomes. The tool is intended to assist with model validation (see EUROMOD Country Reports) and compares policies in place in two consecutive years, both in nominal and real terms. Furthermore, the Advanced version of PET provides users with additional options and methods for decomposing household disposable income changes. For example, it allows for flexibility in determining the end-period for the comparison, selecting the dataset for each period, and exploring different types of counterfactual scenarios. The underlying methodology is detailed in Paulus, A., & Tasseva, I. V. (2020), and its online appendix.

Marginal Tax Rate add-on (MTR)

The MTR add-on in EUROMOD enables the calculation of marginal tax rates (MTRs) for all countries and policy years. MTRs indicate the percentage of an incremental earnings increase that is taxed away due to social insurance contributions, taxes, and loss of benefit entitlement. These rates serve as a measure of labor market incentives at the intensive margin of labor supply. The add-on supplements country-specific policies by running and storing policy system results twice: first with baseline policies and then with increased earnings. This process involves iterating through households, increasing earnings for each earner, and calculating the difference in household disposable income between the two runs.

More information available in the "MTR Add-On Documentation" (see Model documentation) and in Jara and Tumino (2013).

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).

More information available in the "NRR Add-On Documentation" (see Model documentation).

Labour Market Adjustment add-on (LMA)

The LMA add-on in EUROMOD is a tool that allows users to modify the labour market situation of individual observations, either to adjust the market structure with updated information or to create hypothetical labour market scenarios. It was initially developed for nowcasting, i.e. estimating income distribution changes when up-to-date microdata is unavailable. For more information on nowcasting see chapter 19 in Atkinson et al. (2017). The add-on adjusts the socioeconomic characteristics of individuals undergoing labour market transitions in EUROMOD's underlying microdata. By combining this with modelled policy changes, it enables simulations of the current income distribution and poverty risk, considering policy and labour market dynamics.

More information available in the "LMA Add-on Documentation" and in the document "Simulating labour market transitions in EUROMOD" (see Model documentation).

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), which can optionally be used.

More information available in the "TCA Add-on Documentation" (see Model documentation).

Indirect Tax Tool (ITT)

The Indirect Tax Tool, developed by the Joint Research Centre in collaboration with KU Leuven, University of Essex and Praxis Center for Policy Studies, aims to enhance EUROMOD by incorporating the simulation of indirect taxes. Indirect taxes constitute a significant portion of government revenues in the EU and have a considerable impact on household budgets, particularly for low-income individuals. Accounting for indirect taxation is crucial when evaluating tax-benefit reforms and welfare systems. The tools operates within the EUROMOD spine, eliminating the need for a separate plugin and enhancing model transparency and ease of use. The project expands the input dataset, introduces a new policy module, and enhances the Statistics Presenter. It allows for different behavioral assumptions in tax reform simulations, including constant income shares, expenditure shares, and quantities, while discussions are ongoing regarding the assumption of full pass-through. The tool, still at a testing phase, will be disseminated publcly in EUROMOD releases in the following years.

More information about the project available here. Macrovalidation and other statistics from the HBS-SILC imputation method available here,