Income tax statistics analysis: A comparison of microsimulation versus group simulation
Microsimulation based on income tax statistics may be useful in tax reform discussions. Unfortunately, access to appropriate data is still rather restricted and expensive for ad-hoc analyses, and individual data is often even not available at all. In this paper we take Germany and its data situation as a proxy for many countries? restrictions in terms of tax data availability. Analyzing how much reliability and robustness of results we lose if we employ group simulation instead of microsimulation, we compare both methods. Investigating tax scale effects by the group model leads to very good results. Determining the financial effects of modified tax bases, the deviation from the microsimulation results increases, especially if tax base cuts vary between taxpayers. In addition, we take account of the class of taxpayers with a negative taxable income. Neglecting this class we identify a systematic underestimation of the financial consequences of a modified tax base with the group model assuming a progressive tax scale. If the group simulation data is not arranged according to the taxable income, but rather according to the total amount of income, we also find a tendency towards higher deviations from the microsimulation results. Quantifying the tax revenue effects of alternative tax settings the group simulation model represents a good compromise between the desire to capture the complex reality and the achievable accuracy when facing limited resources and data. Furthermore, for those cases in which group simulation is the appropriate tool, we provide a very simple method to interpolate a suitable income distribution and thereby the tax distribution within the classes. This interpolation makes future estimates of tax revenues a lot easier. We conclude that, although microsimulation in general is the superior approach, a group simulation model remains of interest, especially for analyses of rather old data and cross-country analyses, when sufficiently detailed data for micro analyses is missing.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gerhard Wagenhals, 2004. "Tax-benefit microsimulation models for Germany: A Survey," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 235/2004, Department of Economics, University of Hohenheim, Germany.
- Emmanuel Saez & Michael R. Veall, 2003.
"The Evolution of High Incomes in Canada, 1920-2000,"
Quantitative Studies in Economics and Population Research Reports
382, McMaster University.
- Emmanuel Saez & Michael R. Veall, 2003. "The Evolution of High Incomes in Canada, 1920-2000," NBER Working Papers 9607, National Bureau of Economic Research, Inc.
- Emmanuel Saez & Michael R. Veall, 2003. "The Evolution of High Incomes in Canada, 1920-2000," Social and Economic Dimensions of an Aging Population Research Papers 99, McMaster University.
- Berglas, Eitan, 1971. "Income Tax and the Distribution of Income: An International Comparison," Public Finance = Finances publiques, , vol. 26(4), pages 532-45.
- Zandvakili, Sourushe, 1994. "Income Distribution and Redistribution through Taxation: An International Comparison," Empirical Economics, Springer, vol. 19(3), pages 473-91.
- Christhart Bork & Hans-Georg Petersen, 1999. "Revenue and Distributional Effects of the Current Tax Reform Proposals in Germany - An Evaluation by Microsimulation," Finanzwissenschaftliche Diskussionsbeiträge 26, Universität Potsdam, Wirtschafts- und Sozialwissenschaftliche Fakultät.
- Callan, Tim & Sutherland, Holly, 1997. "The impact of comparable policies in European countries: Microsimulation approaches," European Economic Review, Elsevier, vol. 41(3-5), pages 627-633, April.
- O'Donoghue, Cathal & Sutherland, Holly, 1999. "Accounting for the Family in European Income Tax Systems," Cambridge Journal of Economics, Oxford University Press, vol. 23(5), pages 565-98, September.
- Peter Haan & Viktor Steiner, 2005. "Distributional Effects of the German Tax Reform 2000 - A Behavioral Microsimulation Analysis," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 125(1), pages 39-49.
- Kakwani, Nanok C, 1977. "Measurement of Tax Progressivity: An International Comparison," Economic Journal, Royal Economic Society, vol. 87(345), pages 71-80, March.
- Gerhard Wagenhals, 2000.
"Incentive and Redistribution Effects of the German Tax Reform 2000,"
Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim
188/2000, Department of Economics, University of Hohenheim, Germany.
- Gerhard Wagenhals, 2000. "Incentive and Redistribution Effects of the German Tax Reform 2000," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 57(3), pages 316-, May.
- Pudney, Stephen & Sutherland, Holly, 1994. "How reliable are microsimulation results? : An analysis of the role of sampling error in a U.K. tax-benefit model," Journal of Public Economics, Elsevier, vol. 53(3), pages 327-365, March.
- Wagstaff, Adam & van Doorslaer, Eddy & van der Burg, Hattem & Calonge, Samuel & Christiansen, Terkel & Citoni, Guido & Gerdtham, Ulf-G. & Gerfin, Michael & Gross, Lorna & Hakinnen, Unto, 1999. "Redistributive effect, progressivity and differential tax treatment: Personal income taxes in twelve OECD countries," Journal of Public Economics, Elsevier, vol. 72(1), pages 73-98, April.
- Thomas Piketty, 2003. "Income Inequality in France, 1901-1998," Journal of Political Economy, University of Chicago Press, vol. 111(5), pages 1004-1042, October.
- Sutherland, H., 1995. "Static Microsimulation Models in Europe: A Survey," Cambridge Working Papers in Economics 9523, Faculty of Economics, University of Cambridge.
- Adam Wagstaff & Eddy van Doorslaer, 2001. "What Makes the Personal Income Tax Progressive? A Comparative Analysis for Fifteen OECD Countries," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 8(3), pages 299-316, May.
When requesting a correction, please mention this item's handle: RePEc:ijm:journl:v:2:y:2009:i:1:p:32-48. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jinjing Li)
If references are entirely missing, you can add them using this form.