Producing EUROMOD budget constraint charts

Transcription

1 Producing EUROMOD budget constraint charts By Alari Paulus, Daniela Mantovani and Horacio Levy, August 2006 Uses: Comparing the structure and illustrating the incentive effects of taxbenefit systems through stylised household types Checking and validating the effects of a simulated system Latest Euromod Version applied: EUROMOD C6 Expertise level: Very basic Parameter files and tools used: EM_ HypoData.xls Control file Running tool EM_BudgCstr.xls Implementation: Step 1: Creating hypothetical data a. Open Euromod s main page and click on Tools b. Click on the link to Hypothetical data c. On the control sheet ( ctrl ) set the gross hourly wage 1 and rent per month 2 (see Figure 1). Any currency can be used. However if you intend to use the same hourly wage and rent in different countries it is advisable to use amounts in euro. (The currencies used will be specified later on.) This information will automatically update the dataset in the worksheet HypoData. This synthetic dataset contains all compulsory common variables needed to simulate EUROMOD in any country 3. There are seven different family types. For each family type there are 81 different observations corresponding to 1 Excel worksheet APW provides the hourly wages for the Average Production Worker for EU-25, EU-15, Euro-zone, NMS and for EU-15 countries between 1996 and By default it is assumed that the monthly rent is equal to 30% of the monthly gross earnings of a person working 40 hours per week. You may change this by type a different amount or by altering the existing formula. 3 Country specific variables are not included. These are automatically created by EUROMOD using default values specified in the variable description file (vardesc.xls). 1

2 different family incomes (earnings): from 0 to twice the wage of a person working 40 hours per week at the chosen gross hourly wage. Family types considered are the following: - a1c1: Single - a1c1: Single parent with one child - a1c2: Single parent with two children - a2c0: One earner couple without children - a2c1: One earner couple with one child - a2c2: One earner couple with two children - a2c3: One earner couple with three children Figure 1. Hypothetical Data Tool d. Save and close e. Open the MSAccess file were you want to include the datasets (e.g., W1_V1GR.mdb) f. Select the option Get External Data / Import from the File menu. g. Select EM_HypoData.xls 4 (and sheet HypoData) and follow the instructions of the Import Spreadsheet Wizard Step 2: Setting EUROMOD to use the hypothetical data a. Open Euromod s main page and click on Parameters 4 Located in a sub-folder EuromodFiles\Tools. 2

3 b. Choose the country you want to simulate by clicking on its flag followed by its name (in the lowest section) c. Choose the tax-benefit system (year) that you want to simulate and click on it 5 This will bring you to a worksheet similar to that shown in Figure 2. Figure 2. Control file d. Make a copy of the worksheet and rename it (e.g., GR_hypo) e. Set parameter baseline equal to yes in all systems f. Change the database and database_table1 in accordance to the MSAccess file and table used in Step 1 (e.g., database: W1_V1GR and database_table1: HypoData) g. Check that the parameter outdatapath is correct h. Check that the database and output currency parameters are consistent with your hypo data. If you are using euro in the hypothetical dataset then currency_db should be euro. If you are interested to make cross-country comparisons you may want to produce your output data in euros. i. Parameter use_default tells EUROMOD to automatically create country specific variables using default values specified in the variable description file (vardesc.xls). This must be switched off (set 5 When more than one database is available the same system may appear more than once. Although this is not relevant in this particular recipe, we recommend the user always chooses the baseline database-system combination. This can be easily recognised by its bold font and the cell highlighted in light blue. 3

4 to 0) when using real micro data, however it needs to be switched on (set to 1) when using the hypothetical database. j. Check (and if necessary change) the uprate factors. When running the hypothetical data you may want to set all uprate factor equal to 1. k. Save and close Step 3: Running EUROMOD a. Open Euromod s main page and click on Run Euromod b. Click on Refresh c. Set to yes the dataset-system combinations that you want to run (see figure 3) d. Click on save as text e. Click on run Figure 3. Run Euromod Euromod will write its micro output as a text file in a predefined folder (by default c:\euromod\output) Step 4: Producing the budget constraint charts a. Open Euromod s main page and click on Tools b. Click on the link to Budget constraint charts. It will open a file similar to that shown in Figure 4. c. On the control sheet ( ctrl ) set the path where the micro output files are (e.g., c:\euromod\output) 4

5 Charts can be drawn for as many countries and systems as wanted. However, this tool is meant only for stylised household types, therefore, it should employ only hypothetical datasets. Following the example in row 30, for each country-system a new row should be added including the country acronym, the system, the micro output file, the baseline and the family types to be depicted. Standard micro output files (e.g., gr_1998output_std_gr.txt) and hypothetical micro data output files (e.g., gr_1998output_hypodata_gr.txt) both can be used, although the latter is preferred. Extended micro output files (e.g., gr_1998output_ext_std_gr.txt) would produce incoherent results. Baseline can be used to compare the selected tax-benefit system against another. This is useful, for example to look at the impact of reform in comparison to the current system. If no comparison is wanted, the baseline cell must be equal to the system or left empty. Otherwise, the baseline cell should only be filled with a system that has already been included in a previous row (see Figure 4). Assuming one wants charts of the 2003 Greek system (GR2003) and a reform named GR2003ref1 using a couple with two children, the following steps should be taken: d. Row 31: set country acronym GR, system GR2003, name of the micro output file gr_2003output_hypo_gr.txt, baseline empty, family type a2c2 equal to 1 and all other family types equal to 0 e. Row 32: set country acronym GR, system GR2003ref1, name of the micro output file gr_2003ref1output_hypo_gr.txt, baseline GR2003, family type a2c2 equal to 1 and all other family types equal to 0 f. Click bottom Run. This will execute a macro that will automatically create the charts for the systems and family types selected. Each chart will be on a different worksheet named according to the system and family type (e.g., gr2003_a2c2). The chart depicts the distribution of different income concepts sorted by the household s original income. The income concepts plotted are: - Std_dispy: standard disposable income - originaly: original income (45 degree line) - out_ben: social benefits - out_simben: simulated social benefits - out_tax: direct taxes - out_simtax: simulated direct taxes - out_eesic: employee social insurance contributions - GAIN: disposable income difference between this tax-benefit system (reform) and the original (baseline) system. 5

6 The macro also produces a sheet named like the tax-benefit system (e.g., gr2003) with the micro data at the household level. These data may be used to compute other indicators (e.g., effective marginal tax rates). Note: you can change the default format of the chart by modifying the format of the graph available in the worksheet chart. Figure 4. Euromod budget constraint tool 6