SRMOD - Microsimulation Tax and Social Contributions Model

Since septemeber 2009, in cooperation with the Essex University, FREN is working on developing SRMOD, a microsimulation tax and social contributions model, which is based on EUROMOD. This model will present a powerfull tool in the hands of the fiscal and social policymakers in Serbia for ex-ante analysis of the macroeconomic and microeconomic (distribution) effects of a potential tax reform.

The microsimulation procedures were designed to examine the effect of economic policy on the economic and social situation of the households. The model is fed by the data from the available surveys, such as the Living Standard Labor Survey, and the policy variables, such as for example the tax rate. By changing the policy variables, the analyst can assess the effect of the economic policy on: 1) state budget, 2) poverty and income distribution and 3) employment stimuli.

The microsimulation model for Serbia will be compatible with EUROMOD, the model which is used in the EU, and models based on it are used in Russia, South Africa and five South-American countries. The fact that the model is so widespread makes it suitable for comparative research, which will be of significance for the research community in Serbia, especially for the researchers in the following areas: public finance, labor economics, social policy, inequality and poverty.

FREN’s researchers who work on the development of SRMOD attended a meeting of the national teams who participate in the development of EUROMOD held at the Essex University on Septemebr 22-23, 2010. At the meeting, the researchers presented the results of SRMOD development up to that point and talked about integrating SRMOD into EUROMOD i.e. the possibility of Serbia being added to the list of the countries whose tax and social contribution systems are simulated within EUROMOD. They got an affirmative feedback from the project manager Professor Holly Sutherland and a video conference meeting was scheduled on which the details of this proposition would be discussed.

After the meeting, on September 23-24, 2010, a conference was held (1st Essex Microsimulation Workshop) at which a series of papers was presented showing the application of the microsimulation models in the academic domain, but also with important consequences for policymaking. During the meeting and the conference, new ideas emerged regarding further improvement of SRMOD (e.g. including indirect taxes and/or upgrading the model by adding a labor supply model) and the contacts with the researchers who would help the SRMOD team in this were made.

Reagrding the proposition to integrate SRMOD into EUROMOD, the members of the SRMOD team determined the activities which need to be done in the following period fort he model to be finalized. A detailed documentation of the process of buliding the model will follow which will include the validation of the results of the simulations. The plan is to submit that documentation together with the model to the EUROMOD team for verification, after what SRMOD would become an integral part of EUROMOD.