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Microsimulation of indirect taxes

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Author Info

  • André Decoster

    (University of Leuven.)

  • Jason Loughrey

    (Rural Economy Research Centre, Teagasc)

  • Cathal O'Donoghue

    (Rural Economy Research Centre, Teagasc)

  • Dirk Verwerft

    (University of Leuven.)

Abstract

The goal of this paper is to simulate a tax shift from labour to consumption and perform a distributional analysis of the reform. Microsimulation programs are often uniquely focussed on the personal income tax system and on social security contributions and benefits. However, against a political background where income taxes are under increased pressure and alternative, less distortive forms of taxation come under consideration, microsimulation models enriched with expenditure data and consumption tax structures could play an important role in sharpening the (distributional) picture of such systemic changes. The current paper discusses an algorithm for this enrichment - mainly with VAT, excises and other consumption taxes - within the context of the EUROMOD-framework and applies the obtained program to the simulation of a decrease of social security contributions compensated by a rise in standard VAT rate to maintain government budget neutrality for four EU countries. The measure is found to have a (first order) regressive effect, pointing to the fact that keeping redistribution constant would require the remaining post-reform income taxation to become more progressive.

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File URL: http://ima.natsem.canberra.edu.au/IJM/V4_2/Volume%204%20Issue%202/4_IJM_56_Decoster_Loughrey_Odonoghue_Verwerft_be.pdf
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Bibliographic Info

Article provided by Interational Microsimulation Association in its journal International Journal of Microsimulation.

Volume (Year): 4 (2011)
Issue (Month): 2 ()
Pages: 41-56

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Handle: RePEc:ijm:journl:v:4:y:2011:i:2:p:41-56

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  1. James Banks & Richard Blundell & Arthur Lewbel, 1997. "Quadratic Engel Curves And Consumer Demand," The Review of Economics and Statistics, MIT Press, MIT Press, vol. 79(4), pages 527-539, November.
  2. Ahmad, Ehtisham & Stern, Nicholas, 1984. "The theory of reform and indian indirect taxes," Journal of Public Economics, Elsevier, Elsevier, vol. 25(3), pages 259-298, December.
  3. Sutherland, Holly & Immervoll, Herwig & O'Donoghue, Cathal, 1999. "An introduction to EUROMOD," EUROMOD Working Papers EM0/99, EUROMOD at the Institute for Social and Economic Research.
  4. Auerbach, Alan J., 2006. "The Choice between Income and Consumption Taxes: A Primer," Berkeley Olin Program in Law & Economics, Working Paper Series, Berkeley Olin Program in Law & Economics qt9q85f6qz, Berkeley Olin Program in Law & Economics.
  5. Cathal O'Donoghue & Massimo Baldini, 2004. "Modelling the Redistributive Impact of Indirect Taxes in Europe: An Application of EUROMOD," Working Papers, National University of Ireland Galway, Department of Economics 0077, National University of Ireland Galway, Department of Economics, revised 2004.
  6. Fullerton, Don & Rogers, Diane Lim, 1991. "Lifetime Versus Annual Perspectives on Tax Incidence," National Tax Journal, National Tax Association, National Tax Association, vol. 44(3), pages 277-87, September.
  7. Richard Blundell & Ian Preston, 1998. "Consumption Inequality And Income Uncertainty," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 113(2), pages 603-640, May.
  8. Poterba, James M, 1989. "Lifetime Incidence and the Distributional Burden of Excise Taxes," American Economic Review, American Economic Association, American Economic Association, vol. 79(2), pages 325-30, May.
  9. King, Mervyn A., 1983. "Welfare analysis of tax reforms using household data," Journal of Public Economics, Elsevier, Elsevier, vol. 21(2), pages 183-214, July.
  10. Willem Adema & Maxime Ladaique, 2005. "Net Social Expenditure, 2005 Edition: More Comprehensive Measures of Social Support," OECD Social, Employment and Migration Working Papers, OECD Publishing 29, OECD Publishing.
  11. Richard Arnott & Bruce Greenwald & Ravi Kanbur & Barry Nalebuff (ed.), 2003. "Economics for an Imperfect World: Essays in Honor of Joseph E. Stiglitz," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262012057, December.
  12. Decoster, Andre & Schokkaert, Erik & Van Camp, Guy, 1997. "Is redistribution through indirect taxes equitable?," European Economic Review, Elsevier, Elsevier, vol. 41(3-5), pages 599-608, April.
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Cited by:
  1. Lars-H. R. Siemers, 2014. "A General Microsimulation Model for the EU VAT with a specific Application to Germany," Volkswirtschaftliche Diskussionsbeiträge, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht 167-14, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.

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