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Empirical Evidence on the Effects of Marginal Tax Rates on Income – The German Case

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  • Peter Gottfried

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  • Hannes Schellhorn
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    Abstract

    In 1990 the German personal income tax schedule underwent a major change. We interpret this reform as a ‘natural experiment´ and use a panel of individual income tax returns to analyze the response of income to changes in the individual tax rates. Our results suggest an average elasticity of taxable income with respect to the net-of-tax rate of around 0.4. Due to the detailed information the panel provides, we are not only able to distinguish between different levels of income but also between different types of income. We found very low elasticity estimates in the case of regular employment income, but values of up to 1.0 for business income and for high-income households.

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    Bibliographic Info

    Paper provided by Institut für Angewandte Wirtschaftsforschung (IAW) in its series IAW Discussion Papers with number 15.

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    Length: 29 pages
    Date of creation: Feb 2004
    Date of revision:
    Handle: RePEc:iaw:iawdip:15

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