This report is the third and final deliverable of the project JRC/SVQ/2018/B.2/0021/OC, in which we develop a new Indirect Tax Tool for EUROMOD (ITTv3). The objective of the project is to modify the already existing indirect tax tool (ITTv2) as follows:

• increasing the number of countries for which indirect tax simulation can be performed;
• performing the imputation of expenditure variables from the Household Budget Surveys (HBS) to the European Union Statistics on Income and Living Conditions (EU–SILC) datasets at the most detailed level of aggregation available (roughly 200 good categories). This enables the simulation of tax rate changes on narrowly defined good or service categories;
• integrating the ITT into EUROMOD to increase the model’s transparency and ease of use.

In order to achieve these objectives, the following tasks have been executed throughout the project:

• the latest releases of the Eurostat versions of the national HBS micro–data (2010) and the EU–SILC micro–data for the corresponding (or closest available) year are gathered for all member countries of the EU. A selection of 18 countries was made on the basis of relevance of
  the country and a first quality check of the available data. The datasets of these countries are prepared for imputation by means of standard data cleaning and harmonisation procedures;
• an imputation method is developed in order to meet the challenges of imputing expenditure variables at highly disaggregated levels. A tool kit for evaluating the imputation results of this method is developed and applied to the imputation results for the 18 selected countries;
• the ITT is integrated into the EUROMOD microsimulation model. Three alternative behavioural assumptions for simulating expenditure reactions to price and income fluctuations and associated changes in individual indirect tax burdens, are available: constant quantities,
  constant income shares, and constant expenditure shares.