Association for Public Policy Analysis & Management

Microsimulation models are valuable evaluation tools for analyzing tax policy, and can answer questions such as: How many families would be affected? If the tax policy provides benefits, how large would the benefits be? Because microsimulation models are built on nationally representative data that contain rich demographic information, we can estimate impacts on specific groups, for example: families living in poverty (or any other income category); rural families; and Latino families. By way of example, we will examine a series of tax policy options that aim to reduce the burden of child care expenses for families. Microsimulation models can estimate costs to government if existing tax credits were made refundable. The models can also estimate the size of the benefit an average family would receive, given different allowable expense amounts.