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Happy Taxpayers? Income Taxation and Well-Being

  • Akay, Alpaslan

    ()

    (University of Gothenburg)

  • Bargain, Olivier

    ()

    (University of Aix-Marseille II)

  • Dolls, Mathias

    ()

    (ZEW Mannheim)

  • Neumann, Dirk

    ()

    (Université catholique de Louvain)

  • Peichl, Andreas

    ()

    (ZEW Mannheim)

  • Siegloch, Sebastian

    ()

    (University of Mannheim)

This paper offers a first empirical investigation of how labor taxation (income and payroll taxes) affects individuals' well-being. For identification, we exploit exogenous variation in tax rules over time and across demographic groups using 26 years of German panel data. We find that the tax effect on subjective well-being is significant and positive when controlling for income net of taxes. This interesting result is robust to numerous specification checks. It is consistent with several possible channels through which taxes affect welfare including public goods, insurance, redistributive taste and tax morale.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6999.

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Length: 34 pages
Date of creation: Nov 2012
Date of revision:
Handle: RePEc:iza:izadps:dp6999
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