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Introducing Family Tax Splitting in Germany: How Would It Affect the Income Distribution and Work Incentives?

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  • Steiner, Viktor

    ()
    (Free University of Berlin)

  • Wrohlich, Katharina

    ()
    (DIW Berlin)

Abstract

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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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2245.

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Length: 29 pages
Date of creation: Aug 2006
Date of revision:
Handle: RePEc:iza:izadps:dp2245

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Keywords: work incentives; household taxation; income distribution; microsimulation;

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References

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  1. Baclet, Alexandre & Dell, Fabien & Wrohlich, Katharina, 2005. "Income Taxation and Household Size: Would French Family Splitting Make German Families Better Off?," IZA Discussion Papers 1894, Institute for the Study of Labor (IZA).
  2. Homburg, Stefan, 2000. "Das einkommensteuerliche Ehegattensplitting," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 261-268.
  3. Matthias Wrede, 2003. "The Income Splitting Method: Is it Good for Both Marriage Partners?," German Economic Review, Verein für Socialpolitik, Verein für Socialpolitik, vol. 4(2), pages 203-216, 05.
  4. Viktor Steiner & Katharina Wrohlich, 2004. "Household Taxation, Income Splitting and Labor Supply Incentives: A Microsimulation Study for Germany," Discussion Papers of DIW Berlin 421, DIW Berlin, German Institute for Economic Research.
  5. Paul Bernd Spahn & Helmut Kaiser & Thomas Kassella, 1992. "The tax dilemma of married women in Germany," Fiscal Studies, Institute for Fiscal Studies, Institute for Fiscal Studies, vol. 13(2), pages 22-47, May.
  6. Apps, Patricia & Rees, Ray, 2007. "The Taxation of Couples," IZA Discussion Papers 2910, Institute for the Study of Labor (IZA).
  7. Creedy, J. & Duncan, A., 1999. "Welfare, Non-Linear Busget Constraints and Behavioural Microsimulation," Department of Economics - Working Papers Series, The University of Melbourne 688, The University of Melbourne.
  8. Laisney, François & Beninger, Denis & Beblo, Miriam, 2003. "Family Tax Splitting: A Microsimulation of its Potential Labour Supply and Intra-household Welfare Effects in Germany," ZEW Discussion Papers 03-32, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  9. Viktor Steiner & Peter Haan & Katharina Wrohlich, 2005. "Dokumentation des Steuer-Transfer-Mikrosimulationsmodells STSM 1999 - 2002," Data Documentation 9, DIW Berlin, German Institute for Economic Research.
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Citations

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Cited by:
  1. C. Katharina Spieß & Katharina Wrohlich, 2006. "The Parental Leave Benefit Reform in Germany: Costs and Labour Market Outcomes of Moving towards the Scandinavian Model," Discussion Papers of DIW Berlin 630, DIW Berlin, German Institute for Economic Research.
  2. Helene Dearing & Helmut Hofer & Christine Lietz & Rudolf Winter-Ebmer & Katharina Wrohlich, 2007. "Why are mothers working longer hours in Austria than in Germany? A comparative micro simulation analysis," Economics working papers, Department of Economics, Johannes Kepler University Linz, Austria 2007-11, Department of Economics, Johannes Kepler University Linz, Austria.
  3. Denis Beninger & Holger Bonin & Julia Horstschräer & Grit Mühler, 2010. "Wirkungen eines Betreuungsgeldes bei bedarfsgerechtem Ausbau frühkindlicher Kindertagesbetreuung: eine Mikrosimulationsstudie," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 79(3), pages 147-168.
  4. Katharina Wrohlich, 2011. "Labor Supply and Child Care Choices in a Rationed Child Care Market," Discussion Papers of DIW Berlin 1169, DIW Berlin, German Institute for Economic Research.
  5. Tim Callan & A. Van Soest & John R. Walsh, 2007. "Tax Structure and Female Labour Market Participation: Evidence from Ireland," Papers, Economic and Social Research Institute (ESRI) WP208, Economic and Social Research Institute (ESRI).
  6. Peichl, Andreas & Fuest, Clemens & Bergs, Christian & Schaefer, Thilo, 2006. "Reformoptionen der Familienbesteuerung - Aufkommens-, Verteilungs- und Arbeitsangebotseffekte," FiFo Discussion Papers - Finanzwissenschaftliche Diskussionsbeiträge 06-8, University of Cologne, FiFo Institute for Public Economics.
  7. Fabien Dell & Katharina Wrohlich, 2006. "Income Taxation and its Family Components in France," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, Ifo Institute for Economic Research at the University of Munich, vol. 4(4), pages 50-54, 02.
  8. Spiess, C.Katharina & Wrohlich, Katharina, 2008. "The Parental Leave Benefit Reform in Germany: Costs and Labour Market Outcomes of Moving towards the Nordic Model," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 575-591.

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