Better social protection coverage and greater benefits in developing countries would certainly be welcomed by many. More and better forms of social protection would reduce extreme poverty, build resilience against shocks and even help households to move out of poverty, by making it possible for countries to invest in education, health, and productive activities.
The trouble is, as ever so often, the financing side. Developing countries already struggle to raise sufficient revenues. Additional expenses could easily lead to widening government deficits. Revenue-neutral reforms, thus policy reforms that finance new or additional benefits by raising taxes, may have ambiguous effects on poverty. Knowing what different policy options mean for the country helps decision makers make sound choices.
Tax-benefit microsimulation is a very handy tool to shed light on social protection and taxation policy choices. These models, which combine representative data on household incomes and expenditures and detailed coding of countries' tax and benefit legislation, are routinely used in the analysis of policy reforms in many, mostly developed, countries. They provide answers to questions--such as who benefits from tax and benefit reforms, how much such reforms cost the government, and what are the impacts on poverty and inequality.
Developing countries have largely lacked these models; yet having access to such models would be useful and topical, given the increasing need to raise revenues and expand social policies in the developing world. These are some of the reasons why UNU-WIDER has launched the SOUTHMOD project, developing tax-benefit microsimulation models for a number of countries in Africa and elsewhere.
Tax-benefit microsimulation is also an excellent tool for bringing 'discipline' to the policy discourse by providing solid evidence. Microsimulation is, in this way, fundamental for policy deliberations and discussions: proposed policy reforms must be concrete enough so that their effects can be simulated, and the benefits and costs become transparent.
The launch of GHAMOD
In May we launched GHAMOD (/node/89149), a tax/benefit microsimulation model for Ghana, which was developed as a joint undertaking between UNU-WIDER, ISSER of the University of Ghana in Legon, and the University of Tampere in Finland.
Like other models within the SOUTHMOD (/node/12384) initiative, GHAMOD is based on the EUROMOD...