Tax expenditures also known as tax incentives, taxbenets, tax reliefs or spending through the tax code as exemptions, reduced rates, deductions, tax credits that reduce the tax payer's liability etc. The existence of tax expenditures is extremely important and as such needs to be properly estimate with micro-simulation model
In general, the purpose of tax expenditures is to support certain economic sectors and activities, certain social groups, etc., and it is important to note that there is no unified definition of tax expenditures in the literature. According to the World Bank, an example of tax expenditures, in a broader context, are tax provisions that deviate from a normative or a specific tax system and may take a number of forms: exemptions, allowances, deductions, rebates, credits, preferential tax rates or tax deferrals (WB 2006). According to the Organisation for Economic Cooperation and Development (OECD), a tax expenditure is a transfer of public resources that is achieved by reducing tax obligations with respect to a benchmark tax (i.e., the standard tax system), rather than by a direct expenditure. Due to the fact that there is no single definition of tax expenditure that is applied everywhere, most countries use the definition of tax expenditure of the OECD. Tax expenditures may occur in various forms (e.g. exemption, relief, deductions, credit, etc.), which can be delivered through several types of direct and indirect taxes. Their provision is usually based on a specific goal that should be achieved, and those benefiting can be natural persons and legal entities.
In order to estimate tax expenditure it is crucial to have a robust micro-simulation model which can have the possibility to estimate tax expenditures through different groups of taxpayers.
In this light, this code was prepared as an example of a simplified micro-simulation model that can be used to determine TE's. Example here is estimation of TE'S from Personal Income tax on basis of syntetic data.
Purpose of this code is like background material for research paper titled as ,,Tax Expenditures Report: The case of Republic of North Macedonia" prepared for 9-th International Workshop on Domestic Revenue Mobilisation organized by Deutsches Institut für Entwicklungspolitik (DIE) and the Council on Economic Policies (CEP).
