Constructing a Tax-Benefit Model: What Advice Can One Give?

This paper takes the form of advice given to a hypothetical government on the construction of a tax-benefit model. The importance of the quality of the data and the care taken in its adjustment is emphasised . The choice of the unit of analysis, the requirements of the income data, methods of updating and the coverage and representativeness of the dataset as a whole is discussed. Caution in making use of estimates of behavioural change is advised. Throughout, examples drawn from the construction of TAXMOD, a model for the U.K., are used to illustrate particular points. Copyright 1991 by The International Association for Research in Income and Wealth.