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Optimal Policy Modelling and Welfare Policy Settings in Australia
The complexity of the social security system makes it challenging for policy makers to assess what changes should be made to the system to achieve policy objectives, and the implications of changes to the system. This paper describes the results of an initial attempt to develop a new methodology and modelling tool for optimising the social security system to achieve a particular outcome. The illustrative case used is minimising relative income poverty. We do this by using a microsimulation approach in which we alter welfare payments (or other parameters) to minimise household poverty, subject to a range of constraints, such as the overall social security budget or relationships between payment rates. The relationship between payment rate and poverty gap is then estimated using a linear regression model that provides parameter values for an equation that describes how changes in payment rates affect the poverty gap. This equation can be used to determine ‘optimal’ payment rates, subject to constraints such as a budget constraint or changes from current payment levels. Discussion will also include some extension work that includes the derivation and impact of new equivalence scales on optimal policy modelling results and the inclusion of a simple change to the personal income tax system to optimal policy modelling.
Ben is an associate professor at the Centre for Social Research and Methods (CSRM). He has over 20 years of experience as an economic and social researcher in Australia. Ben manages the CSRM microsimulation modelling team and the team's PolicyMod model of the Australian tax and transfer system. Ben's main areas of research include modellling welfare, poverty and taxation in Australia. Ben's major research project is the development of a new methodology for estimating the optimal welfare system for Australia using microsimulation modelling.Prior to joining the ANU Ben was responsible for a range of modelling projects at NATSEM including the STINMOD microsimulation model of Australia’s tax and transfer system. Ben managed several key projects including the distributional analysis of the Federal Government’s 2014-15 and 2015-16 Budgets.
Prior to joining the ANU Ben twice worked at NATSEM and has also had roles at the ABS as a methodologist and economist, The Housing Industry Association as a senior economist and the Bureau of Tourism Research as an economic forecaster. Ben has a first class honours degree in economics and is undertaking a PhD through the Research School of Social Sciences focusing on optimal policy modelling in the area of welfare.