Summary

• Model indirect tax effects of individual tax reforms #1114 asks for an automatic pass-through from direct-tax reforms (income tax, NI) to indirect-tax revenue (VAT, excise) via household consumption response — UKMOD's TCO module uses a consumption elasticity of 0.8.
• Persist the plan in-repo at docs/book/policy/indirect-tax-effects-plan.md.
• Key finding from auditing the current code:
  • PolicyEngine UK already has the downstream infrastructure (consumer_incident_tax_revenue_change distributes an aggregate change across households by consumption share).
  • What's missing is the upstream link: today the user has to manually set the aggregate via gov.contrib.policyengine.budget.consumer_incident_tax_change.
• The page covers:
  • Phase 1: a single household-level consumption_response_factor driven by net income change and a single elasticity parameter (UKMOD's 0.8),
  • Phase 2: per-category elasticities calibrated to ONS Living Costs and Food Survey,
  • Phase 3: automatic linkage to consumer_incident_tax_revenue_change,
  • recommended hook pattern (split *_consumption -> *_consumption_baseline data input + *_consumption derived formula applying the factor),
  • open questions on decile-varying elasticities, saving residual, and labour-supply interaction.
• Pure documentation; no code changes.

Test plan

• Markdown lints cleanly.
• Docs build job picks up the new page under policy/.

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