The IAW Tax Simulation Model: Evaluating tax policy via microsimulation

The purpose of this project is to develop a simulation model that allows forecasting of future revenues as well as a detailed comprehension of both distributional effects and economic incentives that may come along with future tax reforms in Germany.

Therefore, in contrast to the variety of existing simulation models, this approach combines the following two distinctive features:

Firstly, detailed microeconomic data is added to the simulation model whereas all applied forecasting models are limited to the usage of aggregated macroeconomic data.

Secondly, behavioral responses of the micro-units to fiscal shocks like tax reforms, shall be measured and accounted for in this model. These second order effects, for example, are not part of the current forecasting method used by the German Ministry of Finance (BMF).

Further, in order to obtain a suitable data set, the German Socio-Economic Panel (GSOEP) is linked to data from the wage- and income-tax statistics from German official statistics.