Integrating indirect taxation into EUROMOD: Documentation and results for Germany

This paper documents the integration of microsimulation tools for direct taxation, indirect taxation, and social benefits in the context of the European tax and benefit simulator, EUROMOD. Integration has been developed parallely for the two countries, Belgium and Germany. The paper at hand documents the process and presents simulation results for the case of Germany. An integrated data base underlying EUROMOD that contains household-level information on income and consumption is generated. Consumption micro data from the 2008 cross section of the household budget survey for Germany is used to impute information on spending for durable and non-durable commodities into EU-SILC data, applying regression-based imputation techniques. Engel curves are estimated at the household level for total non-durable spending, expenditures on durable goods, as well as non-durable expenditure share equations. Distributional plots evaluate the goodness of fit of the imputations. As a result, status quo tax legislation is simulated in EUROMOD on imputed household spending, and incidence analysis of baseline VAT is undertaken. Finally, several arbitrary policy reforms implementing VAT rate uniformity are analysed with respect to their distributional impact.