SOUTHMOD: Modelling Tax-benefit Systems in Developing Countries

Decoster, A., Pirttilä, J., Sutherland, H., and Wright, G. (2019), SOUTHMOD: Modelling Tax-benefit Systems in Developing Countries, International Journal of Microsimulation, 12 (1), 1-12.

Social protection has attracted increasing interest in developing countries in recent decades and policies have been initiated in all developing regions. Cash transfer policies are already in place in many African countries, but their coverage is still limited, although it is expanding.1 Many of the cash transfer programmes have been started as pilots with donor funding in certain regions or among certain target groups. Instead of isolated social protection projects, there is now an urgent need to move towards scaling up such policies to generate nation-wide social protection systems.
When countries build up their social protection systems, they need reliable information and tools on how the systems should be designed. Second, they need to explore new ways of financing social protection, since donors increasingly demand that the systems are financed using domestic means rather than donor support. This requires fostering tax capacity and developing the tax systems simultaneously with advances in social protection.
Tax-benefit microsimulation models are tailor-made tools to examine, from an ex ante perspective, the system-wide impacts of tax and benefit policies. They are especially well suited for the analysis of interactions between different policies, which is of key importance when determining the overall impact of taxes and transfers on poverty, inequality, and fiscal net revenues. Such models are routinely used by policy makers and researchers in developed countries. However, with few exceptions, developing countries have not had access to such models. Having an opportunity to test the likely impacts of policy reforms would be especially timely in the current circumstances where developing countries build up their policies from a very basic —or even non-existent— level of social protection.
This is the backdrop against which UNU-WIDER, a Helsinki-based research institute devoted to the study of economic development in poor countries, initiated the SOUTHMOD project in 2015.2 The articles in this issue represent selected research outputs from the project.
The purpose of the project was to build new models for seven developing countries (Ecuador, Ethiopia, Ghana, Mozambique, Tanzania, Vietnam, and Zambia) and update and further develop two existing models (NAMOD for Namibia and SAMOD for South Africa). The models were prepared by local teams from the participating countries, with support from microsimulation experts from the EUROMOD team at the University of Essex, Southern African Social Policy Research Insights (SASPRI), and KU Leuven.
As the name may reveal, the models are built on the EUROMOD platform. This is because EUROMOD offers an easy-to-use, yet fully programmable, user interface for microsimulation. The second reason is that EUROMOD has embraced the goal of producing comparable simulation models across European countries. For an international research organization such as UNU-WIDER, comparability is most useful and can stimulate South-to-South learning among different participating countries.
The first versions of the models are now ready, and we have organized model launches and training courses in the countries in question to inform policymakers and researchers about the models and to teach potential users. It is planned to keep the models up-to-date by coding new policy rules as reforms take place and producing additional underpinning input datasets when new waves of data become available. And of course, the models are being developed further: one way to develop them is via research that is based on the models. The current issue reports on some of the research findings that are based on the first batch of SOUTHMOD models.