Labor force participation rates of mothers in Austria and Germany are similar, however full-time employment rates are much higher among Austrian mothers. In order to find out to what extent these differences can be attributed to differences in the tax transfersystem, we perform a comparative micro simulation exercise. After estimating structural labor supply models of both countries, we interchange two important institutional characteristics of the two countries, namely (i) the definition of the tax unit within the personal income tax and (ii) the parental leave benefit scheme. As our analysis shows, differences in mothers' employment patterns can partly be explained by the different tax systems: While Germany has a system of joint taxation with income splitting for married couples, Austria taxes everyone individually, which leads to lower marginal tax rates for secondary earners than the German system.
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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number
695.
Length: 27 p. Date of creation: 2007 Date of revision: Publication status: Published in: Fiscal Studies 28 (2007), 4, 463-495 Handle: RePEc:diw:diwwpp:dp695
Find related papers by JEL classification: J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
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