Social Modelling and Public Policy: What is microsimulation modelling and how is it being used?

The aim of this paper is to provide an overview of social modelling, and in particular a general introduction to and insight into the potential role and usefulness of microsimulation in analysing public policy. Despite having made a major contribution to the development of tax and cash transfer policies, there are many important areas of government policy to which microsimulation has not yet been applied or only slow progress has been made. This includes the health and disabilities fields. Some of the main distinguishing characteristics of social models are discussed. The paper then describes recent microsimulation modelling developments at the National Centre for Social and Economic Modelling (NATSEM) and how these are being used to inform social and economic policy in Australia. Examples include: the potential use of NATSEM’s static tax and cash transfer model (STINMOD) in assessing changes in the Disability Support Pension; modelling the Pharmaceutical Benefits Scheme; application of dynamic modelling for assessing future superannuation and retirement incomes; and the development of a geographicalbased i.e. regional microsimulation model (SYNAGI). Various technical aspects of the modelling are highlighted in order to illustrate how these types of socioeconomic models are constructed and implemented. The key to effective social modelling is to recognise what type of model is required for a given task and to build a model that will meet the purposes for which it is intended. The results produced then have to be interpreted within the boundaries and limitations of the model. Some of the new models being built by NATSEM lie at the frontiers of current knowledge. The potential of microsimulation models in the social security, welfare and health fields is very significant. However, it is important to recognise that measuring economic and social benefits is ‘not just about the dollars’. Policy decisions are necessarily going to involve value judgements policies are created and implemented within a political environment. The aim is for social modelling, and in particular policy simulations, to contribute to a more rational analysis and informed debate. In this context, microsimulation models can make a significant contribution to the evaluation and implementation of ‘just and fair’ public policy. iv Brown & Harding – Social Modelling