A General Microsimulation Model for the EU VAT with a specific Application to Germany

Abstract

The major sales tax in the EU-and in several other countries-is practiced as value-added tax of the consumption type with invoice method. Literature on microsimulation models (MSM) for VAT is rare, though the importance of VAT has continuously increased. We discuss the issues of VAT-MSM in detail and develop a basic general VAT-MSM, applicable to the EU member states (and beyond). To illustrate the functioning of the general model, we apply it in detail to the specific case of Germany. We provide comprehensive estimation results for the distributional and fiscal effects of the German VAT. Finally, we simulate the effects of a small VAT reform, comparing static and behavioral response simulations.

Regressivity-Reducing VAT Reforms

“…In order to assess whether the rst-order approach is suitable for the simulated reforms, a simple methodology is proposed to account for possible second-order e fects. Siemers et al (2014), that, using own-price elasticities of demand drawn from previous crosscountry studies, provides estimates for groups of commodity items in rich and poor countries. Janskỳ 2014estimates the behavioural response of consumers to price changes by applying a QUAIDS model on the basis of the Czech Statistical O ce household expenditure coupled with consumer price index for the period from 2001 to 2011.…”