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Socio-Economics

Gauging the impact of reform on the French system of taxes and public benefits

Brice fabre

Nationality French

Year of selection 2017

Institution Institut des politiques publiques – IPP

Country France

Risk Socio-Economics

Post-Doctoral Fellowship

2 years

130000 €

In all complex systems, the overall impact of a change in variables is hard to predict. The French tax and benefit system is no exception. Its non-linearity, the diversity of individuals’ characteristics, and the interaction between different taxes and benefits make it arduous for policymakers or analysts to properly anticipate the impact of reforms. In view of improving the policy debate in France, Dr. Brice Fabre’s post-doctoral project aims to build a dynamic computer model encompassing the complete French system of taxes and public benefits. This ambitious enterprise relies on the use of French administrative data, « which has been made recently available to the research community through secured access », the researcher explains. A prime objective of the model is to incorporate behavioural responses to changes in tax and benefit systems, as « they are key to discriminate between alternative policy options ». What is more, the model will be available in open source.

 

The type of computerized analytical tool Fabre is working on is called microsimulation. « In simple terms, it consists in simulating taxes and social benefits of each micro-level unit (an individual, or a household) of a database representative of a given population, under any tax and benefit system. Then, it is possible to draw conclusions that apply to higher levels of aggregation such as an entire country », explains Dr. Brice Fabre. « To estimate the effects of various reform options, it is standard for public administrations to rely on a microsimulation model which takes into account the full diversity of individuals’ characteristics ». « But these current state-of- the-art models are based on household surveys, with limited information on detailed tax characteristics, and a limited sample », he pinpoints.

 

Data fusion : towards more accurate results

This project is expected to create an input of much improved quality by being based on a large set of administrative data, including anonymous income tax records, benefit records, social security records, etc. To integrate this data into the model, the research makes use of a process called data fusion. « Data fusion is a rapidly developing technology in the context of Open Data. It is receiving growing attention in economics, but has rarely been used in the context of microsimulation », the researcher points out. Another important innovation of Fabre’s project is the investigation of behavioural responses to changes in taxes and benefits and their impact on total tax revenues. Indeed, by matching various administrative data together, the objective is also to study how individuals are most likely to react to various reforms, taking into account labour supply, tax avoidance, income shifting, etc. A database merging different administrative data sources is expected to give more precise evidence and to bring new knowledge on these behavioral responses. « The development of such a model, available in open source, is key to improve the policy debate on changes in the tax and benefit system », says Fabre. « This is all the more true in a context where there is a growing attention towards structural reforms of our tax systems. » By aiming to make his model available in open source, Dr. Fabre’s project promises to considerably change the expertise available in the public debate and bring about game-changing social innovation.