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The effects of income taxation on severance pay

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  • Goerke, Laszlo
  • Pannenberg, Markus

Abstract

Severance pay often results from a bargain between the firm and the employee to avoid or terminate a legal conflict. We theoretically investigate how income taxation affects these negotiations. Using panel data from West Germany and exploiting a change in tax law in 1999, we find that a higher income tax on severance pay reduces the probability of obtaining it and - in some specifications - also lowers its amount. Our results imply overshifting of the increase in the tax burden.

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Bibliographic Info

Article provided by Elsevier in its journal Labour Economics.

Volume (Year): 16 (2009)
Issue (Month): 1 (January)
Pages: 107-118

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Handle: RePEc:eee:labeco:v:16:y:2009:i:1:p:107-118

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Web page: http://www.elsevier.com/locate/labeco

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Keywords: Severance pay Income taxation Survey data;

References

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  1. Christian Grund, 2006. "Severance payments for dismissed employees in Germany," European Journal of Law and Economics, Springer, Springer, vol. 22(1), pages 49-71, July.
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  6. José Enrique Galdón Sánchez & Maia Güell, 2001. "Dismissal conflicts and unemployment," Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra, Departamento de Economía - Universidad Pública de Navarra 0105, Departamento de Economía - Universidad Pública de Navarra.
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  11. Pietro Garibaldi & Giovanni L. Violante, 2005. "The Employment Effects of Severance Payments with Wage Rigidities," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 115(506), pages 799-832, October.
  12. Miguel �. Malo, 2000. "A Simple Model of Severance Pay Determination: The Case of Individual Dismissals in Spain," LABOUR, CEIS, CEIS, vol. 14(2), pages 269-290, 06.
  13. Schivardi, Fabiano & Torrini, Roberto, 2008. "Identifying the effects of firing restrictions through size-contingent differences in regulation," Labour Economics, Elsevier, Elsevier, vol. 15(3), pages 482-511, June.
  14. Lucian Arye Bebchuk, 1984. "Litigation and Settlement under Imperfect Information," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 404-415, Autumn.
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  16. Jeffrey M. Wooldridge, 1999. "Asymptotic Properties of Weighted M-Estimators for Variable Probability Samples," Econometrica, Econometric Society, Econometric Society, vol. 67(6), pages 1385-1406, November.
  17. Burda, Michael C, 1992. " A Note on Firing Costs and Severance Benefits in Equilibrium Unemployment," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 94(3), pages 479-89.
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Citations

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Cited by:
  1. Laszlo Goerke & Markus Pannenberg, 2010. "'Take it or Go to Court' - The Impact of Sec. 1a of the German Protection against Dismissal Act on Severance Payments -," CESifo Working Paper Series 3120, CESifo Group Munich.
  2. Goerke, Laszlo & Pannenberg, Markus, 2010. "An economic analysis of dismissal legislation: Determinants of severance pay in West Germany," International Review of Law and Economics, Elsevier, Elsevier, vol. 30(1), pages 71-85, March.
  3. Helge Berger & Michael Neugart, 2006. "Labor Courts, Nomination Bias, and Unemployment in Germany," CESifo Working Paper Series 1752, CESifo Group Munich.
  4. Deffains, Bruno & Gabuthy, Yannick & Lambert, Eve-Angéline, 2010. "Labour disputes, investment decisions and the judiciary," Labour Economics, Elsevier, Elsevier, vol. 17(2), pages 424-433, April.

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