A Customizable Microsimulation Tool to Analyze Distributional Effects of Country Fiscal Policies

Abstract

Microsimulation modelling has become a powerful tool to analyze the effects of fiscal policy changes. The World Bank’s Equity Policy Lab (EPL) has developed a customizable microsimulation tool to assess the distributional effects of tax, benefits, and other fiscal reforms. This Note explains why and how countries use the microsimulation tools, using examples from Ecuador and Armenia—2 of the more than 20 countries that have developed and used the tool over the past 2 years—to demonstrate its effectiveness in engaging government officials and informing policy making.