Distributional and Welfare Effects of Germany's Year 2000 Tax Reform

39 Pages Posted: 24 Jan 2011

See all articles by Richard R. Ochmann

Richard R. Ochmann

German Institute for Economic Research (DIW Berlin)

Date Written: November 1, 2010

Abstract

This paper empirically investigates distributional and welfare effects of Germany's year 2000 income tax reform. The reform is simulated in an ex-ante behavioral microsimulation approach. Dead weight loss of changes in capital income taxation is estimated in a structural model for household savings and asset demand applied to German survey data. Significant reductions in tax rates result in income gains for most of the households. Gains are found greater for households in higher tax brackets, whereby income inequality increases, slightly greater in East- than in West-Germany. Moreover, households increase savings and alter the structure of asset demand as a result of shifts in relative asset prices. As a consequence, utility losses reduce welfare effects for almost all households.

Keywords: Capital Income Taxation, Household Savings, Asset Demand, Welfare Effects

JEL Classification: C35, G11, H31

Suggested Citation

Ochmann, Richard R., Distributional and Welfare Effects of Germany's Year 2000 Tax Reform (November 1, 2010). DIW Berlin Discussion Paper No. 1083, Available at SSRN: https://ssrn.com/abstract=1735440 or http://dx.doi.org/10.2139/ssrn.1735440

Richard R. Ochmann (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

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