Peering into the black box: Using microsimulation methods to evaluate the gendered impact of taxes and transfers

Unitary models of household behaviour and decision-making remain the mainstream of academic research and official statistics of income and living standards, despite extensive evidence contradicting their assumptions. The main difficulty in moving beyond unitary models in empirical analysis has been how to deal with intra-household allocation issues satisfactorily. We show here how microsimulation models are a tool to go beyond assumptions of complete pooling and equal sharing when examining the gendered effects of tax/benefit policies. We discuss the principles and assumptions behind microsimulation models and highlight their strengths and weaknesses in dealing with intra-household allocation issues. After reviewing the limited literature using microsimulation to examine gender and/or intra-household inequality, we show how these models can be improved by combining them with information on income pooling from surveys to create more realistic scenarios of partial pooling in particular. We conclude by reviewing possible policy applications and suggesting future directions for research.