The development of an integrated framework combining economic efficiency, social justice, and ecological effectiveness using microsimulation modelling

This research explores how microsimulation modelling can be used to develop an integrated framework that evaluates economic efficiency, social justice, and ecological effectiveness simultaneously.

When social policies are designed and implemented, analysis often focusses on one or maximum two main objectives: economic efficiency and/or social justice. Policymakers and researchers frequently examine how policy reforms can reduce poverty and inequality, or how they can strengthen work incentives and increase employment levels. Microsimulation models, such as the EU tax-benefit microsimulation model EUROMOD, are useful to analyse these distributive and labour market effects of policies. However, policy designs in the context of the just transition towards climate neutrality increasingly require a multi‑dimensional perspective that goes beyond the traditional efficiency-equity trade-off. Current research shows that a third factor affects the existing trade-off: next to economic efficiency and social justice, policies must also consider ecological effectiveness.

A policy measure that illustrates this challenge, is the implementation of a carbon tax. Research shows that it is an economically and ecologically efficient tool to reduce GHG emissions (Baranzini et al., 2017; Timilsina, 2022). On the one hand, it encourages households, businesses, and governments to reduce their emissions, and it provides incentives for innovation. On the other hand, the cost to the government is relatively low, particularly compared to other policies aimed at reducing GHG emissions. However, empirical findings also show that it is very often regressive: households in lower income groups face a higher tax burden than those in higher income groups (Boyce, 2018). The combination of ecological effectiveness, economic efficiency, and potential social inequity highlights the need for an integrated framework that addresses these trade-offs.

Although existing microsimulation models can analyse each dimension separately, we argue that an integrated framework that considers efficiency, justice, and effectiveness simultaneously is needed. Our research tries to contribute to this by exploring how microsimulations models can be used to examine a framework that integrates various indicators (economic, social, and environmental outcomes) together. As an example, we will apply our framework to carbon taxation in Belgium, using Green EUROMOD (the recently developed environmental extension of EUROMOD), building further on Bursens et al. (2026).