The Social Code II (SGB II) has been introduced on January 1st 2005 and governs the merging of the former Unemployment Assistance (UA) and Social Assistance (SA) for able-bodied recipients. This project originates from the motivation of evaluating this policy reform and is conducted in cooperation with the Institute of Employment Research (IAB). In order to analyse the macroeconomic impacts of the new tax-financed benefit (Unemployment Benefit II) supplementing previous research, the development of a tax-benefit micro-simulation model is required in advance.The joint objective of the project is to enhance the existing tax-benefit micro-simulation model and to apply it to a variety of research questions. Moreover, it is also intended to enhance the micro-economic labour market model that is integrated within the tax-benefit micro-simulation model. Eventually, both models should complement one another to a consistent micro-simulation model. The joint development work aims at conducting an ex-ante-evaluation of the personal income distribution effects and the expected labour market effects caused by the merging of UA and SA.