This paper extends previous research about the determinants of reservation wages by analysing the effect of progressive income taxation on the ratio between reservation and net market wages. Based on micro data for Germany (SOEP) we show that joint income taxation in Germany which discriminates by marital status, has a strong and highly significant impact on the reservation/market wage ratio. Relative to single filers, this leads to strong negative labour supply incentives for secondary earners and to positive incentives for first earners in married couples.
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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number
670.
Length: 15 p. Date of creation: 2007 Date of revision: Publication status: Forthcoming in: Applied Economic Letters 2008 Handle: RePEc:diw:diwwpp:dp670
Find related papers by JEL classification: J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
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