Documentation of the tax-benefit microsimulation model STSM: Version 2012

The Tax-Transfer-Simulation-Model (STSM) is a microsimulation model used for the empirical analysis of the effects of taxes, statutory social security contributions and social transfers on the distribution of incomes, labour supply decisions of private households, and their budgetary (fiscal) effects in Germany. Besides a detailed depiction of the German tax and transfer system, the STSM includes a microeconometric household labour supply model. The database is the German Socio-Economic Panel Study (SOEP) of the German Institute for Economic Research (DIW Berlin). The STSM is programmed in the statistical software Stata, which is also used for the estimation of the integrated labour supply model. This document contains a description of the procedure for calculating the household specific income taxes and transfers at the household level and some indications of possible applications of the STSM. It is a revised and updated version of the previous STSM documentations (Steiner et al., 2005; 2008). It takes into account the regulations of the tax and transfer system as of 2012. Chapter 2 introduces the possible applications. Chapter 3 presents the database and the selection of households included in the simulation. Chapter 4 describes in detail the relevant regulations of the German tax-benefit system and their implementation in the STSM. Chapter 5 summarizes research based on STSM by topic illustrating the wide range of possible applications.