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Personal Income Taxation in Austria: What do the Reform Measures Mean for the budget, Labour Market Incentives and Income Distribution?

Author

Listed:
  • Viginta Ivaškaitė-Tamošiūnė
  • Alexander Leodolter
  • Marie-Luise Schmitz

Abstract

In Austria, a comprehensive tax reform came into force on 1 January 2016. The stated aim of the tax reform was to noticeably reduce personal income taxation. The reform package included an increase in the number of brackets in the personal income tax system from four to seven, an increase in the amounts of several allowances and tax credits, and an increased reimbursement of social security contributions for low-income earners. A simulation with EUROMOD, a microsimulation model encoding the tax-benefit systems of all EU Member States in a harmonised way, estimates the impact of the changes in personal income taxation that were a major part of the reform and thereby covers almost the whole tax relief part of the reform package. It addresses the effect of the reform measures on the government budget, labour market incentives (implicit tax rate) and income distribution. It does not consider behavioural changes and therefore does not include second-round effects. Given all this, the simulations suggest a revenue loss of EUR 4.8 billion for the year 2015, which equals 15.8% of personal income tax revenue or 1.4% of GDP, due to the change in personal income tax. The impact on mean equivalised disposable income of households is positive for all income deciles. It is increasing across all deciles as an absolute value and increasing up to the eighth decile as a percentage of the baseline income. The reform significantly decreases the implicit tax rate in all income deciles, particularly in the first five deciles. It is only marginally less redistributive and the risk of poverty slightly decreases.

Suggested Citation

  • Viginta Ivaškaitė-Tamošiūnė & Alexander Leodolter & Marie-Luise Schmitz, 2017. "Personal Income Taxation in Austria: What do the Reform Measures Mean for the budget, Labour Market Incentives and Income Distribution?," European Economy - Economic Briefs 030, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  • Handle: RePEc:euf:ecobri:030
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    References listed on IDEAS

    as
    1. Jens Matthias Arnold, 2008. "Do Tax Structures Affect Aggregate Economic Growth?: Empirical Evidence from a Panel of OECD Countries," OECD Economics Department Working Papers 643, OECD Publishing.
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    More about this item

    Keywords

    Economic Brief; EUROMOD; tax; reform; fiscal policy; tax wedge; poverty; inequality; Austria; Personal income taxation in Austria – What do the reform measures mean for the budget; labour market incentives and income distribution?; Ivaškaitė-Tamošiūnė; Leodolter; Schmitz.;
    All these keywords.

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • 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

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