The Hidden Burden of the Income Tax: Compliance Costs of German Individuals
Freie Universität Berlin, School of Business & Economics Discussion Paper No. 2011/6
41 Pages Posted: 16 Feb 2012 Last revised: 6 Mar 2012
Date Written: April 1, 2011
We analyze the compliance costs of individual taxpayers resulting from the German income tax. Using survey data that has been raised between December 2008 and April 2009, we find evidence for a considerably higher cost burden of self-employed taxpayers. Taxable income and the demand for external support are positively correlated with compliance costs, while the time effort of female taxpayers is significantly lower. We also find evidence for a positive correlation of education and tax knowledge with the compliance burden. By contrast, a joint assessment of a married couple seems to reduce the monetized time effort. The aggregated cost burden of German income taxpayers amounts to 6.1-7.2 billion €, respectively 3.2-3.7% of the income tax revenue in 2007. This estimate is higher than latest projections in a number of other European countries like Spain and Sweden, but significantly lower than results for the United States and Australia.
Keywords: Tax complexity, tax compliance costs, compliance burden, red tape, personal income tax
JEL Classification: H21, H23, H25, H26, H83
Suggested Citation: Suggested Citation