Research :: Croatian Science Foundation Projects
Project: Application of Microsimulation Models in the Analysis of Taxes and Social Benefits in Croatia (AMMATSBC)

Program: Croatian Science Foundation research projects (IP-09-2014)

Project manager: Ivica Urban

Project duration: 36 months (September 1, 2015 – August 31, 2018)

Summary: Microsimulation model of taxes and social benefits (MSMTB) calculates for each individual person from a set of microdata the corresponding amounts of taxes payable and social benefits receivable. MSMTBs allow ex ante review of the effects of changes in tax-benefit system. Therefore, they are particularly valuable in the reform analysis and planning. Unlike in other EU countries, where the use of MSMTBs is widespread, the development of MSMTBs in Croatia is still in its infancy. There have been several ad hoc microsimulation analyses by Croatian researchers, whereas the researchers of the Institute of Public Finance have built a MSMTB prototype. These efforts represent first steps toward accepting microsimulation as a tool in public policy analysis in Croatia. However, much more should be done in inaugurating and promoting MSMTBs.

Therefore, the purpose of this project is to apply microsimulation models of Croatian taxes and benefits in public policy and academic analysis. By application of MSMTBs in analysing contemporary economic and policy problems, the project will demonstrate their effectiveness, and attempt to attract the attention of public administration leaders (PALs) and academic researchers in Croatia. The research project has three objectives:

(1) Develop the microsimulation model of Croatian taxes and benefits – miCROmod – a conventional static arithmetic MSMTB that simulates social security contributions, personal income tax, guaranteed minimum income, child benefit, parental benefits and unemployment benefit. miCROmod is the core around which several supplemental models will be developed, providing additional functions, and will include (a) a local government supplement, modelling taxes and benefits in the City of Zagreb and (b) a behavioural supplement, simulating the impact of changes of tax-benefit instruments on the labour supply and gross wages.

(2) Employ miCROmod and EUROMOD in the analyses of tax-benefit reform scenarios. miCROmod and EUROMOD (a comprehensive MSMTB for the EU) will be used in the analyses of current issues in the Croatian tax-benefit system. These analyses will provide insight into the effect of a number of tax-benefit reforms on income inequality, poverty rates and incentives to work. The following reform scenarios will be simulated: (a) Child benefits reform, (b) Personal income tax reform (c) In-work policies in Croatia, and (d) Local social benefits.

(3) Present the performance of miCROmod and EUROMOD to PALs and researchers.

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