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Long-Term Participation Tax Rates

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  • Charlotte Bartels

Abstract

Generous income support programs as provided by European welfare states have often been blamed to reduce work incentives for the lowskilled and to increase durations of unemployment. Standard studies measure work incentives based on annual income concepts. This paper analyzes work incentives inherent in the German tax-benefit system when extending the time horizon to three years (long-term). Participation tax rates are computed for 1-year and 3-year periods 1995-1997 and 2005-2007 to reveal potential effects of the labor market and tax reforms between 1999 and 2005. The results show that participation tax rates are significantly lower over a 3- year period pointing at an overestimation of the disincentives by standard measures. Reforms reduced participation tax rates, particularly for singles and low-income individuals.

Suggested Citation

  • Charlotte Bartels, 2013. "Long-Term Participation Tax Rates," SOEPpapers on Multidisciplinary Panel Data Research 609, DIW Berlin, The German Socio-Economic Panel (SOEP).
  • Handle: RePEc:diw:diwsop:diw_sp609
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    References listed on IDEAS

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    1. Jukka Pirttilä & Hakan Selin, 2011. "Tax Policy and Employment: How Does the Swedish System Fare?," CESifo Working Paper Series 3355, CESifo Group Munich.
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    3. Cathal O'Donoghue, 2011. "Do Tax–Benefit Systems Cause High Replacement Rates? A Decompositional Analysis Using EUROMOD," LABOUR, CEIS, vol. 25(1), pages 126-151, March.
    4. Herwig Immervoll & Henrik Jacobsen Kleven & Claus Thustrup Kreiner & Emmanuel Saez, 2007. "Welfare reform in European countries: a microsimulation analysis," Economic Journal, Royal Economic Society, vol. 117(516), pages 1-44, January.
    5. Charlotte Bartels, 2012. "Redistribution and Insurance in the German Welfare State," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 132(2), pages 265-295.
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    Cited by:

    1. Bartels, Charlotte & Pestel, Nico, 2016. "Short- and long-term participation tax rates and their impact on labor supply," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 1126-1159.
    2. Robin Jessen & Davud Rostam-Afschar & Viktor Steiner, 2017. "Getting the Poor to Work: Three Welfare-Increasing Reforms for a Busy Germany," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 73(1), pages 1-41, March.

    More about this item

    Keywords

    Welfare; work incentives; unemployment; unemployment insurance;

    JEL classification:

    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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