We analyze the effects of three alternative proposals to reform the taxation of families relative to the current German system of joint taxation of couples and child allowances: a French-type family splitting and two full family splitting proposals. The empirical analysis of the effects of these proposals on the income distribution and on work incentives is based on a behavioral micro-simulation model which integrates an empirical household labor supply model into a detailed tax-benefit model based on the German Socio Economic Panel. Our simulation results show that under each reform the lion’s share of the reduction in taxes would accrue to families with children in the upper part of the income distribution, and that expected labor supply effects are small for all analyzed family tax splitting reforms, both in absolute terms and relative to the implied fiscal costs.
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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number
2245.
Find related papers by JEL classification: 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 J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
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Patricia Apps & Ray Rees, 2007.
"The Taxation of Couples,"
Discussion Papers
07/21, Department of Economics, University of York.
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Other versions:
Patricia Apps & Ray Rees, 2007.
"The Taxation of Couples,"
CEPR Discussion Papers
559, Centre for Economic Policy Research, Research School of Social Sciences, Australian National University.
[Downloadable!]
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