How EUROMOD works
EUROMOD is a static microsimulation model. It applies user-defined tax and benefit policy rules to harmonised micro-data on individuals and households, calculates the effects of these rules on household income, and then outputs results – still at the micro level.
The effects of different policy scenarios can be analysed and compared in the user’s chosen statistical software. In addition, the user interface itself can output a range of summary statistics, including (changes to) risk-of-poverty and income inequality and the (net) budgetary cost of policy changes.
There are three key components to EUROMOD: the coded policy rules, the input micro-data and the software. The default policy rules are those set to 30 June for a given policy year and the micro-data (mainly based on EU-SILC) are processed according to a standard set of protocols. The software - comprising a user interface and a calculation engine - may then be used to adjust the default policy parameters and run new tax-benefit routines, calculating the effects of these changes on incomes in the micro-data.
EUROMOD aims to simulate as much as possible of the tax and benefit components of household disposable income. Generally, the following instruments are simulated in all countries: income taxes (national and local), social contributions (paid by the employees, self-employed and employers), family benefits, housing benefits, social assistance and other income-related benefits.
See EUROMOD: The European Union Tax-Benefit Microsimulation Model for a fuller description.