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Integrated Modelling of the Impact of Direct and Indirect Taxes Using Complementary Datasets

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  • Michael Savage

    (Teagasc Food Research Centre, Dublin)

Abstract

Comprehensive modelling of the impact of taxes and tax policy options requires data on the impact at micro-level of both direct and indirect taxes. With some exceptions, most national expenditure surveys are not suitable for use in detailed modelling of the direct tax and welfare system. This makes approaches that impute expenditure data into detailed income surveys of considerable interest. Using a commonly applied method of imputing expenditure data into an income survey, this paper examines the degree of sensitivity in the distribution of household expenditure, and following that the distributional impact of indirect taxes, as the analysis moves from being based on actual expenditure data as recorded in the Irish Household Budget Survey (HBS), to being based on expenditure data imputed to the Irish Survey on Income and Living Conditions (SILC). Most sensitivity is found in the estimation and imputation of expenditure data for the bottom income decile. Nonetheless, the imputation process is shown to produce highly comparable distributional results when compared with actual expenditure data. An application of an indirect tax microsimulation model integrated with SWITCH, the ESRI tax-benefit microsimulation model, examines the distributional effects of simultaneous reforms of the direct tax, indirect tax, and social welfare systems, illustrating the analytical capability of the approach tested here.

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  • Michael Savage, 2017. "Integrated Modelling of the Impact of Direct and Indirect Taxes Using Complementary Datasets," The Economic and Social Review, Economic and Social Studies, vol. 48(2), pages 171-205.
    • Handle: RePEc:eso:journl:v:48:y:2017:i:2:p:171-205
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    1. O'Malley, Seamus & Roantree, Barra & Curtis, John, 2020. "Carbon taxes, poverty and compensation options," Research Series, Economic and Social Research Institute (ESRI), number SUSTAT98.
    2. Barrett, Michelle & Farrell, Niall & Roantree, Barra, 2022. "Energy poverty and deprivation in Ireland," Research Series, Economic and Social Research Institute (ESRI), number RS144.
    3. Callan, Tim & Bercholz, Maxime & Doorley, Karina & Keane, Claire & Regan, Mark & Savage, Michael & Walsh, John, 2017. "Distributional Impact of Tax and Welfare Policies: Budget 2018," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI).
    4. Callan, Tim & Regan, Mark & Savage, Michael & Walsh, John R, 2017. "Income distribution in Ireland: through recession, towards recovery," Papers BP2018/2, Economic and Social Research Institute (ESRI).
    5. Callan, Tim & Bercholz, Maxime & Doorley, Karina & Keane, Claire & Savage, Michael & Walsh, John R, 2016. "Distributional Impact of Tax and Welfare Policies: Budget 2017," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI).
    6. Bart Capéau & André Decoster & Stijn Van Houtven, 2024. "Piecemeal Modeling of the Effects of Joint Direct and Indirect Tax Reforms," Public Finance Review, , vol. 52(1), pages 111-149, January.
    7. Karina Doorley & Tim Callan & Michael Savage, 2021. "What drove income inequality in EU crisis countries during the Great Recession?," Fiscal Studies, John Wiley & Sons, vol. 42(2), pages 319-343, June.

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