Figures and tables in Microsimulation of indirect taxes | International Journal of Microsimulation

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.

This article contains 4 figures and 8 tables.

Figures

**Figure 1.** Share of different components of government revenue OECD 1955–2005.

**Figure 2.** Share of different components of government revenue – oecd 2005.

**Figure 3.** QQ-plot for disposable income quantiles in budget dataset (dib) versus quantiles in income dataset (dii), Belgium (Euros per year).

Tables

Table 1. Expenditure datasets and income datasets for the four countries.

Country	budget survey	# of households	income survey	# of households	policy year indirect taxes
BE	Household Budget Survey 2003	3,550	EU-SILC 2004	5,275	2003
HU	Household Budget Survey 2005	8,710	EU-SILC 2005	6,924	2005
IE	Household Budget Survey 1999	7,644	Living In Ireland 2000	3,644	2001
UK	Family Expenditures Survey 2003/2004	7,048	Family Resources Survey 2003/2004	28,768	2003

Table 2. VAT-structure and expenditure shares per vat-category; excise rates and shares for the 3 most important excise good categories.

Country and policy year	VAT					Excise
		standar d rate 18–25%	not taxed or exempte d	reduced rate 1 4–6%	reduced rate 2 8–15%	Alcohol	Tobacco	Private transpor t
BE-2003	Rates	21	0	6	12	43.9	162.9	34.7
BE-2003	Shares	41.9	37.9	19.8	0.4	1.7	1.3	8.9
HU-2005	Rates	25	0	5	15	64.3	273.0	79.0
HU-2005	Shares	42.7	8.1	4.1	45.1	0.6	2.6	4.1
IE-2001	Rates	20	0	-	12.5	26.6	300.0	75.4
IE-2001	Shares	36.2	42.0	-	21.8	4.5	3.4	5.3
UK-2003	Rates	17.5	0	5	-	89.7	414.7	58.8
UK-2003	shares	57.7	36.3	6.1	-	1.9	2.2	8.0

Table 3. Average expenditures per consumption category in budget and EUROMOD dataset.

Commodity	expenditures in €, BE		expenditures in €, HU		expenditures in €, IE		expenditures in GBP, UK
Commodity	Budget Survey	EUROMOD	Budget Survey	EUROMOD	Budget Survey	EUROMOD	Budget Survey	EUROMOD
food, non-alcoholic beverages	4,183	4,050	1,813	1,675	4,620	8,215	2,617	2,121
alcoholic beverages	466	400	82	36	1,663	1,513	325	296
tobacco	275	279	191	170	644	1,098	280	321
clothing and footwear	1,395	1,284	442	380	1,848	1,493	1,183	916
home fuels and electricity	1,321	1,284	831	844	1,128	1,987	623	590
rents	1,418	1,560	59	62	681	913	691	543
household services	1,268	1,157	666	685	1,230	1,365	999	818
health	1,608	1,507	245	323	582	391	174	144
private transport	2,660	2,214	590	325	1,394	1,808	1,814	1,413
public transport	161	158	185	148	513	534	292	242
communication	803	758	460	437	739	1,223	551	457
recreation and culture	2,058	1,752	390	384	1,931	2,171	1,760	1,472
education	207	141	76	76	405	368	529	248
restaurants and hotels	2344	1,972	246	153	1,695	1,652	2,105	1,746
other goods and services	2,491	2,175	471	466	4,869	3,917	1,408	1,210
Durables	2,671	2,372	656	658	5,306	3,384	3,405	3,212
All	25,330	23,062	7,645	7,056	29,248	32,032	18,754	15,748

Table 4. Revenue effects of the simulation.

	BE		HU		IE		UK
	baseline	simulation	baseline	simulation	baseline	simulation	baseline	simulation
SIC employee	17,490	-3,900	2,777	-693	168,875	-33,902	42,283	-9,713
PIT	35,500	+ 1,763	4,608	+0	1136,416	+0	164,813	+0
Indirect tax	14,400	+ 2,309	4,300	+ 731	443,139	34,791	71,717	+ 10,655
VAT rate	21%	26%	25%	34%	20%	23.5%	17.5%	21.5%

Table 5. Decomposition of welfare change into total expenditure effect and price change – by decile.

Decile equiv. non durable expend.	BE (EUR)			HU (EUR)			IR (EUR)			UK (EUR)
Decile equiv. non durable expend.	Change nondur. exp.	Price effect	WG	Change nondur. exp.	Price effect	WG	Change nondur. Exp.	Price effect	WG	Change nondur. Exp.	Price effect	WG
1	43	−193	−150	22	−70	−47	0	−59	−58	9	−50	−42
2	79	−262	−183	34	−90	−56	38	−152	−114	39	−99	−60
3	159	−308	−149	57	−105	−48	108	−202	−94	90	−134	−44
4	237	−366	−129	82	−124	−41	213	−277	−64	134	−168	−34
5	389	−417	−28	112	−139	−27	321	−313	8	196	−200	−4
6	482	−455	26	141	−157	−16	364	−328	36	278	−233	45
7	614	−509	105	192	−183	9	390	−338	52	360	−269	91
8	735	−557	178	231	−205	26	483	−403	80	473	−316	158
9	837	−607	230	310	−237	73	523	−399	124	620	−376	245
10	1162	−858	305	527	−339	188	722	−531	191	764	−570	194
Mean	473	−453	20	171	−165	6	316	−300	16	296	−241	55

Table 6. Decomposition of welfare change into total expenditure effect and price change – by group.

group	BE (EUR)			HU (EUR)			IE (EUR)			UK(GBP)
group	Change nondur. exp.	Price effect	WG	Change nondur. exp.	Price effect	WG	Change nondur. exp.	Price effect	WG	Change nondur. Exp.	Price effect	WG
poor	55	−367	−312	30	−90	−60	4	−22	−18	17	−177	−160
non poor	554	−470	84	197	−178	18	329	305	24	362	−257	106
on income support	0	−277	−277	0	−106	−106	0	−24	−24	0	−232	−232
retired	112	−289	−177	117	−120	−3	22	−46	24	35	−164	−130
un−employed	54	−323	−269	35	−107	−72	2	−7	−5	16	−148	−133
mean	473	−453	20	171	−165	6	316	−300	16	296	−241	55

Table 7. Savings rate per decile.

Deciles	BE	HU	IE	UK
1	−63.4	−50.4	−109.9	−37.1
2	−17.5	−14.3	−67.3	1.7
3	−8.1	−3.9	−38.8	10.4
4	−2.1	1.6	−25.0	16.3
5	3.8	6.4	−22.3	21.3
6	9.3	10.1	−11.2	24.2
7	13.3	12.1	−2.9	28.6
8	18.0	14.4	4.5	32.5
9	22.7	17.6	15.4	37.8
10	33.3	27.1	38.5	50.4

Table 8. Suits and Reynolds-Smolensky index for personal income and indirect taxes.

Country	$π_{S}^{P I T}$	$π_{S}^{I N D}$	$π_{S}^{T O T}$	$π_{R S}^{P I T}$	$π_{R S}^{I N D}$	$π_{R S}^{T O T}$
Belgium	0.219	−0.079	0.113	0.057	−0.010	0.046
Greece	0.492	−0.101	0.094	0.035	−0.024	0.01
Hungary	0.424	−0.086	0.144	0.056	−0.015	0.041
Ireland	0.140	−0.143	0.044	0.043	−0.019	0.024
UK	0.200	−0.120	0.092	0.038	−0.011	0.026

Note: $π_{S}^{Y}$ denotes the Suits index for tax component Y, $π_{R S}^{Y}$ the Reynolds-Smolensky index; the superscript PIT refers to Personal Income Taxes, IND to Indirect Taxation and TOT to Personal Income Taxes and Indirect taxation.