Happy Taxpayers? Income Taxation and Well-Being

34 Pages Posted: 8 Jan 2013

See all articles by Alpaslan Akay

Alpaslan Akay

IZA Institute of Labor Economics

Olivier Bargain

IZA Institute of Labor Economics; University College Dublin (UCD)

Mathias Dolls

University of Cologne - Faculty of Management, Economics and Social Sciences; IZA

Dirk Neumann

University of Cologne

Andreas Peichl

ZEW – Leibniz Centre for European Economic Research; University of Mannheim - School of Economics (VWL); IZA Institute of Labor Economics; University of Essex - Institute for Social and Economic Research (ISER)

Sebastian Siegloch

IZA Institute of Labor Economics; University of Mannheim - Department of Economics; ZEW – Leibniz Centre for European Economic Research - Corporate Taxation and Public Finance Research; CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 2 versions of this paper

Date Written: December 1, 2012

Abstract

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.

Keywords: subjective well-being, taxation, public goods

JEL Classification: H21, H41, I38

Suggested Citation

Akay, Alpaslan and Bargain, Olivier and Dolls, Mathias and Neumann, Dirk and Peichl, Andreas and Siegloch, Sebastian, Happy Taxpayers? Income Taxation and Well-Being (December 1, 2012). SOEPpaper No. 526. Available at SSRN: https://ssrn.com/abstract=2197826 or http://dx.doi.org/10.2139/ssrn.2197826

Alpaslan Akay

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Olivier Bargain

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

University College Dublin (UCD) ( email )

Belfield, Dublin 4 4
Ireland
+353 1 716 8357 (Phone)
+353 1 283 0068 (Fax)

HOME PAGE: http://www.ucd.ie/economics/staff/obargain/obargain.htm

Mathias Dolls

University of Cologne - Faculty of Management, Economics and Social Sciences ( email )

Richard-Strauss-Str. 2
Cologne, D-50923
Germany

IZA

P.O. Box 7240
Bonn, D-53072
Germany

HOME PAGE: http://www.iza.org/

Dirk Neumann

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

Andreas Peichl (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

University of Mannheim - School of Economics (VWL) ( email )

Mannheim 68131
Germany

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

University of Essex - Institute for Social and Economic Research (ISER)

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

Sebastian Siegloch

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

University of Mannheim - Department of Economics ( email )

D-68131 Mannheim
Germany

ZEW – Leibniz Centre for European Economic Research - Corporate Taxation and Public Finance Research ( email )

United States

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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