Combining EUROMOD and LIAM Tools for the Development of Dynamic Cross-sectional Microsimulation Models : a Sneak Preview.

The development of a microsimulation model typically is a slow and ?therefore- expensive process. Inversely stated, there is room for efficiency improvements and this chapter suggests one. Often those agencies that enter into dynamic microsimulation already have a static model on a shelf, whether they use it or not. While building a dynamic model, one might want to consider embedding an existing static model in this dynamic framework, to avoid having to create fields in the dynamic model that the static model already possesses. An illustration is the tax-benefit component of the public policy which has to be implemented in all models as far as the distribution of net (or equivalised) disposable income matters. This chapter makes a first attempt to embed the static microsimulation model EUROMOD (version 31A; Sutherland 2007) for Luxembourg with MIDAS_LU, a dynamic microsimulation forward-looking population model available in Luxembourg as well. The latter is developed by means of LIAM (Life-Cycle Income Analysis Model), a toolbox for the development of dynamic cross-sectional microsimulation models. Originally created by Cathal O'Donoghue (O'Donoghue et al., 2009) and subsequently extended through the AIM project (Dekkers et al. 2010), it has been used for model development in several European countries, including Luxembourg. In embedding the static EUROMOD in the dynamic MIDAS_LU, we make use of the fact that the two show similarities in terms of their contents and internal organization (e.g. discrete time oriented). The reason is clear: both are targeting close final objectives, the analysis of distribution of income and the impact of a change in the tax-benefit system, hence involving similar input data bases and procedures for the computations. The role of EUROMOD (or a static module like EUROMOD) might be to take care of most tax-benefit computations on a year-by-year basis in an efficient and flexible way. Including it in the dynamic model avoids having to develop these modules specifically for the dynamic model. The dynamic framework would then simply help in making endogenous the life events of the population (e.g. related to demography and employment status) in EUROMOD.