How does raising income tax affect government revenue or economic inequality? What are the costs and benefits of implementing a state pension? Which social protection policies are most effective in reducing poverty?

Tax-benefit microsimulation models help answer such questions, providing valuable insights for improving policymaking and promoting inclusive development. The models make it possible to assess and compare the potential impacts of different policy scenarios on poverty, inequality, and government revenues. This makes them a useful tool for researchers and policy makers alike.

Tax-benefit microsimulation models combine detailed coding of tax and benefit legislation with representative household level data on incomes and expenditures. In the models, user-defined policy rules are applied to the micro-data to calculate the effects of these rules on household income.
 

Models for low- and middle-income countries

While microsimulation models are routinely used by researchers and policymakers in high-income countries, few low- and middle-income countries have access to such tools. Many of these countries are in the process of building up their social protection systems and strengthening public finances through tax system reforms. Tax-benefit microsimulation models like those developed by the SOUTHMOD project support this process by enabling analysis of the system-wide impacts of different policy choices.

This is the backdrop against which UNU-WIDER continues SOUTHMOD, a major research project which develops, updates, and maintains tax-benefit microsimulation models for selected low- and middle-income countries and conducts research and analysis. UNU-WIDER currently hosts thirteen models: seven models for countries in Africa (Ethiopia, Ghana, Mozambique, Rwanda, Tanzania, Uganda, Zambia), four in Latin America (Bolivia, Colombia, Ecuador, Peru), one in Southeast Asia (Viet Nam), and one for the island of Zanzibar, complementing models developed previously for South Africa and Namibia. 

The models are continuously updated and used for research and policy analysis by UNU-WIDER and partners. The project is based on joint work with the Southern African Social Policy Research Insights (SASPRI), the International Inequalities Institute at the London School of Economics and Political Science, and national teams based in the countries for which the models are built.

The SOUTHMOD country models and the associated input data are freely available for non-commercial research use. All models are included in the SOUTHMOD bundle. You can apply for access here, indicating the country models for which you would need the respective input datasets. For the Bolivia, Peru, Rwanda and Viet Nam models we can only share the Stata do-files necessary to produce the underpinning input dataset. Models for Namibia (NAMOD) and South Africa (SAMOD) are available from SASPRI.

SOUTHMOD (Phase 3)

The third phase of the SOUTHMOD project runs from 2024–27, extends the country coverage of the models, and incorporates new data into the existing models. Regular training events delivered by the national SOUTHMOD teams resume, South-South learning is promoted, and capacity development is facilitated through a new, free SOUTHMOD Online Course.

In addition, the models are regularly updated and used for both academic and policy-oriented research.

The third phase generates research findings on the following key questions:

• How can we improve the design of tax and social protection policies to reduce poverty and inequality in a cost-effective manner? 
• What are key untapped sources of tax revenue?
• What are the most impactful social protection measures? 
• What are the distributional and budgetary effects of indirect taxes, environmental taxes, and fuel subsidies, also when accounting for behavioral effects?
• How do existing tax and benefit policies shield populations from climate shocks, across different regions and population subgroups?

EUROMOD platform

SOUTHMOD models are based on the EUROMOD platform originally maintained, developed and managed by the Institute for Social and Economic Research (ISER). Since 2021, EUROMOD has been maintained, developed and managed by the Joint Research Centre (JRC) of the European Commission. EUROMOD is not only a widely-used tax-benefit model for European countries, but also a purpose-built software that offers an ideal platform for developing microsimulation models for new countries. 

Cross-country comparability across SOUTHMOD models—which have been merged into a single bundle in 2023—is ensured by organizing their input data and coding the policies according to a common framework. This framework is based on a standard set of modelling conventions, the so-called SOUTHMOD modelling conventions. Users are also encouraged to review the SOUTHMOD user manual, a comprehensive instruction manual and a guide on the basic operations of the model.

Watch this space

All papers, events, briefs, blog posts, and opportunities to engage relating to phase 3 of the SOUTHMOD project will be available on this webpage.

This page is for SOUTHMOD phase 3. For information on the first phase of the project visit this page. For information on the second phase of the project visit this page.

UN’s 2030 Agenda for Sustainable Development

Improving capacities for tax and other domestic revenue collection is a key target of SDG 17. In addition, SDG 16 is dedicated to the promotion of inclusive societies with effective and accountable institutions. Furthermore, tax capacity is closely linked to the ability of governments to offer better public services to end poverty (SDG 1), reduce inequalities (SDG 10), and ensure sustainable economic growth (SDG 8). Good governance in the area of tax and social protection is a key factor in efforts to improve women and girls’ living standards as they are more dependent on efficient public service delivery (SDG 5).