Projects / Programmes
DEVELOPMENT OF DYNAMIC MICROSIMULATION MODEL
| Code |
Science |
Field |
Subfield |
| 5.02.01 |
Social sciences |
Economics |
Economy sciences |
| Code |
Science |
Field |
| S180 |
Social sciences |
Economics, econometrics, economic theory, economic systems, economic policy |
| Code |
Science |
Field |
| 5.02 |
Social Sciences |
Economics and Business |
dynamic micro simulation, reform of the pension system, ageing, long-term sustainability and adequacy of the pension system, demography, labour market
Researchers (12)
Organisations (2)
Abstract
Presentation of the problem
Economic sustainability and adequacy of social security systems is under severe pressure nowadays. A number of studies prepared during the last five years clearly show that on-going pension reform as well as the new proposed one will not be enough to compensate negative effects of demographic changes after the year 2025. The problem with sustainability of the public finance and pension system will therefore steadily increase, reaching one of the highest public finance deficits among the EU member countries. Reforms in the areas of pension system, health care and long term care systems, the system of social transfers, education and labour market are inevitable.
However, on the other hand there is a lack of appropriately prepared and linked statistical and administrative data bases, as well as the lack of appropriate analytical tools, both needed as an analytical support for the preparation and assessment of the proposed reforms in the various areas of social protection and inclusion.
Scientific background
With a Guy Orcutt's paper »A new type of socio-economic system” (1957) dynamic microsimulation was for the first time introduced into the social sciences. It was the reaction on the shortcomings of macroeconomic models which can be overcome by using microsimulation. Dynamic social science micro simulation can be perceived as a social science laboratory capable to make experiments with the virtual society of thousands/millions of individuals who are created and whose life courses unfold in a computer. Depending on the purpose of the model, individuals make education and career choices, form unions, give birth, work, pay taxes and receive benefits, get divorced, migrate, retire, receive pensions and die.
Modeling at the micro level facilitates policy simulations – tax, benefit, and social security regulations are defined at the individual or family level – microsimulation allows for simulations at any level of detail. As the rules are usually complex and depend in a nonlinear way on various characteristics (like family composition or income), microsimulation is often the only way for studying the distributional impact and long-term sustainability of such systems.
The aim of the project
The main aim of the proposed project is a construction of the dynamic microsimulation model. Development of the dynamic framework - demographic module together with labour market module - will enable us to construct a new pension module. Dynamic framework will on the other hand give us the possibility for further development of the model by adding new modules in the areas of social security, health and education.
Content and methodology
Dynamic microsimulation model will start from a cross-sectional dataset representing a population of all ages at a certain point in time – year 2007. From that starting year up to 2050, the life spans of individuals in the dataset will be simulated, together with their interactions. Events simulated will include birth, receiving schooling, marriage or cohabitation, divorce or separation, entering the labour market, work, unemployment, disability, retirement and death. During their active years, individuals will build up pension rights, which result in a pension benefit when they retire.
Model will consist of different modules, the demographic module, the labour market module and the pension module. The demographic module will be compounded of four different main parts: The birth process, the survival process, the education process and the marriage market.
Originality of the results, relevance and potential impact
Developed model will be the first dynamic microsimulation model prepared in Slovenia and at the same time will represent a natural move towards more complex modeling tool/laboratory in social sciences, which enables scientific and practical work on the crucial structural reforms in the area of taxes, social transfers, pensions, health care, long term
Significance for science
The relevance of the proposed project to the development of science and a scientific field will be manifold: - Model DYPENSI is time-based model, which means that the entire population is moved forward in time. This characteristic enables the creating of linkages between individuals. Additionally, it is continuous-time and not discrete time model. These two features make the model special compared to other dynamic microsimulation models in the field of pensions - Model DYPENSI will become a reference model for the dynamic microsimulation modelling of pension system in the programming environment MODGEN. Clear modular structures, efficiency, flexibility, alignment to macro aggregates make DYPENSI a representative model. - A dynamic micro simulation model is for the first time developed in Slovenia. It provides an experimental platform in social sciences where the possibility of genuine natural experiments is severely limited (if not impossible) by nature. - It’s estimates provide many important parameters for Slovenian economy - probabilities and hazard functions for many important states and transitions used in the model. These parameters are not only relevant for this dynamic micro simulation model but also for various other research questions and methodologies used by other researchers in the future. - Model has taken advantage of detailed database obtained by linking various statistical and administrative databases covering major areas in the society. It is not common for other countries to have such rich databases and to have them analysed with a dynamic micro simulation model. Thus, the model will provide results and opportunity to test theoretical concepts that will be of interest also for other countries and research community. At the same time, the work on data showed where the opportunities for the data sources improvement exists. It was also revealed that unexploited data sources show extremely good potential for scientific work in the future. The opportunities to check the various theoretical concepts arose, that are of interest to other countries and research community in EU. The mentioned research questions are: the link between mortality and education, the probability of disability after the current retirement age, changes in the probability for the disability occurrence in the future, the behavioral impact of the pension amount for persons close to the retirement age, and the like. - In the last several decades Slovenia had unique history that is still reflected in current setting (labour market, pension system etc.). Direct application of parameters and concepts from other countries can therefore be questionable and therefore parameters have been estimated for Slovenian case. On the other hand, parameters obtained for Slovenian case are interesting also for other countries, especially those with which Slovenia shares similar setting from the past. - Developed model will be used for projecting and simulating future development of the pension system, which is crucial for timely and adequate policy decision making process. However, dynamic micro simulation models are suitable for solving various types of problems, finding explanations and building theory. The demographic and labour market modules that have been developed within this project form the common dynamic framework that enables the research community to easily expand the model with additional modules in the areas such as health care, long-term care and education.
Significance for the country
The economic sustainability and adequacy of social security systems is under severe pressure nowadays due to population ageing in Slovenia. A number of studies prepared during the last five years clearly show that on-going pension reform will not be enough and the problem with sustainability of the public finance and pension system will therefore steadily increase, reaching one of the highest public finance deficits among the EU member countries. Reforms in the areas of pension system, health care and long term care systems, the system of social transfers, education and labour market, are inevitable. Linking various available statistical and administrative databases and construction of a dynamic, cross-sectional pension microsimulation model enable the analysis of effects of demographic changes and economic and social policy measures on different segments of the population. Additionally, it is particularly important that the model enables analysis of cumulative effects driven by individual processes. The results of the model will feed the policy advice to decision makers on economic and social policy measures in the areas of labour market, pension system and social protection and social inclusion in general. The new analytical tool enables more precise modelling of the existing pension system, and possible additional changes agreed upon within the process of preparation of the new pension reform aiming at establishing the sustainable and adequate pension system also in the long-term perspective, and will thus contribute to the better quality preparation and execution of the one of the most necessary structural reforms, which affects all current generations as well as all future generations of Slovenian population. Preparation of consistently linked databases and the development of the dynamic micro simulation model has led to a better understanding of the issues involved in the various fields of social protection for both policy-makers and other involved stakeholders in the society. The results of the project contribute to the adoption of more efficient and balanced economic and social measures in the areas of pension system, labor market legislation and social inclusion, by enabling a more informed and argumentative dialogue, thus leading to the increased support of the EU objectives and priorities in the area of social protection. It can be stated that DIYPENSI is an analytical support for the preparation and assessment of the proposed reforms in the various areas of social protection and inclusion. Extension of the linkages and collaboration with the international research teams also on the field of dynamic micro simulation have enabled the transfer and broadening of knowledge as well as the promotion of the Slovenian science in the international area. Development of the model using a modular approach will enable relatively simple enlargement of the model with additional new modules for income tax, social transfers and subsidies, health care, long term care and education. Results obtained with the dynamic model – estimated number of active persons and pensioners – will be used within the Generations accounting model, thus increasing the quality of results important for the preparation of the Convergence program. Results will be also used within the computable general equilibrium model with the aim to assess the complex effects of the proposed reforms. Extremely large data requirements supported the development of a cooperation between researchers and the institutions that manage the data. The need for additional data sets and opportunities for improvements of existing databases were discovered. This process has led to the availability of improved databases from which the entire research community in Slovenia will benefit.
Most important scientific results
Annual report
2011,
2012,
2013,
final report,
complete report on dLib.si
Most important socioeconomically and culturally relevant results
Annual report
2011,
2012,
2013,
final report,
complete report on dLib.si
