Microsimulation models used as a basis for decision-making
Microsimulation models are used in the impact assessments of legislative amendments. Based on the information provided in the government proposals, it is difficult to assess the reliability, accuracy and uncertainty of the models’ results. The use of the models, their results, and the uncertainties in these results should be reported more extensively, as a separate memorandum if necessary.
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Scope of the audit
- The audit focused on the HVSR and SISU microsimulation models maintained by the central government.
- Microsimulations can be used to examine material issues relevant to fiscal policy-related decision-making, such as the impacts of legislative amendments on income distribution, or on the disposable income of individuals and households, and the combined effects of several legislative amendments.
- The aim of the audit was to determine whether the information produced by microsimulation models is transparent and whether the results are communicated in a sufficiently comprehensive and, from a decision-maker’s perspective, comprehensible manner.
- The audit also examined the functionality, maintenance, and development of the microsimulation models in relation to the requirements of their users.
Key findings
- The use of microsimulation models has not been systematically reported in government proposals.
- Based on the data provided in the government proposals, assessing the reliability and accuracy of the results and impact assessments produced using microsimulation models has proven difficult, as has replicating these simulations.
- There is no publicly available description of the HVSR model maintained by the Finnish Tax Administration and how it is used, which makes it difficult for non-users of the model to assess its results, uncertainties, and the reliability of the results attained.
- The SISU model maintained by Statistics Finland is an indispensable tool in several questions related to the knowledge base for fiscal policy-related decision-making, but challenges remain in the technical debt accumulated by the model and the transfer from its current SAS system to an R-language-based solution in the coming years.
Briefly
The HVSR and SISU microsimulation models are used to produce data for the impact assessments of government proposals that cannot currently be obtained using other methods. These models are regularly used to assess the impacts of government proposals, and they are also used, for example, to examine the impact of legislative changes on income distribution and the incomes of individuals and households. Thus, the transparency and effective maintenance and development of the models also promote the quality of the knowledge base for fiscal policy.
The transparency of microsimulation models and their effective maintenance and development also promote the quality of the knowledge base for fiscal policy.
The aim of the audit was to determine whether the information produced by microsimulation models is transparent and whether the results are communicated in a comprehensive and, from a decision-maker’s perspective, comprehensible manner. However, while microsimulations can provide results at a detailed numerical level, the results are subject to a wide range of uncertainty. The audit examined the prevalence of microsimulation models, what kinds of uncertainties their results contain, and how these have been communicated to decision-makers. The audit also addressed the maintenance and development of microsimulation models in the Finnish Tax Administration and Statistics Finland.
Recommendations of the National Audit Office
The Ministry of Finance, the Ministry of Social Affairs and Health, and the Ministry of Education and Culture should ensure that the use of the SISU and HVSR models, their simulation results, and the uncertainties in these results are reported in a sufficiently extensive manner in government proposals and, when necessary, published as separate memoranda.
The Finnish Tax Administration and the Ministry of Finance should publish a description of the HVSR model and its associated uncertainties. This description should be updated whenever any significant changes are made to the model.
As part of the development of the SISU model, Statistics Finland should prioritise the transfer of the model to the R language while also ensuring the continued availability of the model on the SAS system throughout the transition process.
Timing of follow-up
The follow-up of the audit will be conducted in 2028.
Contact persons
Sini Salmi
Principal Fiscal Policy Auditor
Fiscal policy audit