An Exact Analytical Grossing-Up Algorithm for Tax-Benefit Models

In this article, the authors propose a grossing-up algorithm that allows for gross income calculation based on tax rules and observed variables in the sample. The algorithm is applicable in tax-benefit microsimulation models, which are mostly used by taxation policy makers to support government legi...

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Bibliographic Details
Published inInformatica (Ljubljana) Vol. 39; no. 1; p. 23
Main Authors Verbic, Miroslav, Cok, Mitja, Turk, Tomaz
Format Journal Article
LanguageEnglish
Published Ljubljana Slovenian Society Informatika / Slovensko drustvo Informatika 01.03.2015
Subjects
Algorithms
Economics
Governments
Income
Mathematical analysis
Mathematical models
Policies
Taxation
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Summary:In this article, the authors propose a grossing-up algorithm that allows for gross income calculation based on tax rules and observed variables in the sample. The algorithm is applicable in tax-benefit microsimulation models, which are mostly used by taxation policy makers to support government legislative processes. Typically, tax-benefit microsimulation models are based on datasets, where only the net income is known, though the data about gross income is needed to successfully simulate the impact of taxation policies on the economy. The algorithm that they propose allows for an exact reproduction of a missing variable by applying a set of taxation rules that are known to refer to the variable in question and to other variables in the dataset during the data generation process. Its validity was proven by a set of tax rule combinations at different levels of income that are used in contemporary tax systems. The algorithm is generally applicable, with some modifications, for data imputation on datasets derived from various tax systems around the world.
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ISSN:0350-5596
1854-3871