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Effective Taxation of Top Incomes in Germany

Author

Listed:
  • Bach Stefan

    (DIW Berlin (German Institute for Economic Research),Berlin, Germany)

  • Corneo Giacomo

    (Freie Universität Berlin (Free University Berlin),Berlin, Germany)

  • Steiner Viktor

    (Freie Universität Berlin (Free University Berlin),Berlin, Germany)

Abstract

We exploit a dataset that includes the individual tax returns of all taxpayers in the top percentile of the income distribution in Germany to pin down the effective income taxation of households with very high incomes. Taking tax base erosion into account, we find that the top percentile of the income distribution pays an effective average tax rate of 30.5% and contributes more than a quarter of total income tax revenue. Within the top percentile, the effective average tax rate is first increasing, then decreasing, with income. Since the 1990s, effective average tax rates for the German super-rich have fallen by about a third, with major reductions occurring in the wake of the personal income tax reform of 2001-05. As a result, the concentration of net incomes at the very top of the distribution has strongly increased in Germany.

Suggested Citation

  • Bach Stefan & Corneo Giacomo & Steiner Viktor, 2013. "Effective Taxation of Top Incomes in Germany," German Economic Review, De Gruyter, vol. 14(2), pages 115-137, May.
    • Handle: RePEc:bpj:germec:v:14:y:2013:i:2:p:115-137
    DOI: 10.1111/j.1468-0475.2012.00570.x
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    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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