Microsimulation for distributive analysis

A top-down behaviour (TDB) microsimulation toolkit for distributive analysis

Authors: Luca TibertiMartin Cicowiez and John Cockburn

Macro/CGE models are often combined with microsimulation (MS) models to perform distributive impact analysis for fiscal or structural policies, or external shocks. In line with the core mission of PEP, a group of PEP resource persons have joined efforts to develop a user-friendly "Stata-based toolkit to perform microsimulations combined with CGE models in a top-down fashion" and user manual.

Download this material (manual and toolkit) hereA top-down behaviour (TBD) microsimulation toolkit for distributive analysis

(Free public access under a Creative Commons license agreement "Attribution-NonCommercial-NoDerivs")

The manual includes a module that estimates parametrically the income generation where the movements across sectors as well as the changes in wages and self-employment revenues are captured, by skills of workers. Then it estimates households’ specific price deflators based on an individual utility function to capture the effects of changes of the purchasing of power by individuals over time.

The changes estimated by a CGE model (or from other sources) are fed into the MS model in a consistent way. These include changes in: 

  • employment (by skill and sector),
  • wage payroll (by skill),
  • revenues from self-employment activities (by skill),
  • commodities prices.
TDB illustration

Once this tool has estimated the new vector of real consumption or revenue, it performs a series of distributive analysis, such as standard poverty and inequality indices, their decomposition by income factor, robustness analysis and growth incidence curves, and compares the baseline with the simulation results. This helps run standard poverty and distributive analyses, to see whether a given shock or policy had an impact on household welfare, and which households are the most affected.

Using this information, social protection policies can be accurately designed to minimise, for example, the negative effects of a given shock in a cost-effective manner. An illustrative analysis is run on data from Uganda.

TDB-microsimulation toolkit is freely distributed and freely available. Please acknowledge its use by quoting it as:  

Tiberti, L., M. Cicowiez and J. Cockburn (2017), "A top-down with behaviour (TDB) microsimulation toolkit for distributive analysis", PEP


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