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Higher Tax Rates on Labor? Evidence from German Panel Data

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  • Martin Weiss

Abstract

This contribution investigates the justifiable spread between labor and capital income tax rates under a dual income tax, based on arguments put forth in Nielsen and Sørensen (1997). An efficient generalized instrumental variables estimator proposed by Hausman and Taylor (1981) is employed in a Mincer-type wage equation, which is estimated on recent data taken from the German Socio-Economic Panel. The estimated wage patterns yield approximations of the required divergence between the tax rates on labor and capital income for the case of university graduates. The required surcharges are sizable and exceed the ones prevailing under the current German income tax system.

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  • Martin Weiss, 2009. "Higher Tax Rates on Labor? Evidence from German Panel Data," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 65(1), pages 73-92, March.
    • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200903)65:1_73:htrole_2.0.tx_2-1
    DOI: 10.1628/001522108X444125
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    Cited by:

    1. Richard Ochmann, 2014. "Differential income taxation and household asset allocation," Applied Economics, Taylor & Francis Journals, vol. 46(8), pages 880-894, March.

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    More about this item

    Keywords

    dual income tax; wage equation; age-earnings profiles;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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