The model algorithms

The SPSD/M comes with the necessary algorithms and parameters to simulate over 20 years of the Canadian tax/transfer system.

The central program, the SPSM, is a micro-simulation based model which calculates taxes and transfers for individuals and families as appropriate. These calculations are performed for everyone on the SPSD and then aggregated to obtain estimates. The SPSM is a static impact model and is therefore not intended to simulate how an individual's behaviour is likely to change in response to various policy options. A second program, the commodity tax model (COMTAX) is a macro-economic Input/Output based model. COMTAX is intended to provide estimates of effective federal and provincial tax rates by province and commodity type. This model is required because many commodity taxes are levied at intermediate stages of production, not at the final retail stage. Rates calculated by the COMTAX model can be input as parameters into the SPSM to obtain estimates of the commodity taxes paid by any given household.

The SPSM is driven by over 2,000 parameters that control three main processes. Control parameters specify input and output files for a specific model run and are used to activate model software facilities. Database adjustment parameters control the inflation or deflation of money items on the database. Tax/transfer parameters control the specific functioning of the tax and transfer programs. Perusing the included lists of the tax/transfer parameters can give the user a feel for the scope of options available in the tax/transfer algorithms.

The SPSM is written and compiled using the C++ programming language. Changes to the tax/transfer system can be made in two distinct ways: the "black-box" or the "glass box" mode. When using the model in the black-box mode, changes to one or more parameters are specified during a user-friendly dialogue. In this mode the user can change levels and rates affecting various benefits, taxes, and eligibility requirements, and can also specify the population that will be modeled. Most applications are developed using this black-box mode. The glass-box mode is designed for use by persons who wish to develop entirely new algorithms or adjust existing algorithms. Glass-box users can write a new, (or modify an existing) algorithm in the C++ programming language and then recompile the complete system using a simple one word command. The user need not be a C++ language expert in order to use the model in glass-box mode, but should be experienced with some high level computer language. The user requires Microsoft C++ to use the model in glass-box mode.

A set of database adjustment algorithms are included with the model. These algorithms allow the user to "grow" the money items on the current database to some future or past year. The user can select a series of growth rates which are then applied by the model. For most variables a set of province specific growth rates are applied. However for certain important or complex variables more complicated rates are applied. For example, employment earnings are grown by rates specific to the province of employment and sex of the individual. These algorithms can be used independently of or in conjunction with alternate yearly demographic weights included with the database.

In the historical time period, the growth factors reproduce, on a provincial basis, the growth of the conceptually closest benchmark series in the System of National Accounts (SNA). In future years, the growth factors reproduce the growth seen in an average of public and private sector forecasts at a Canada level.