Introducing Family Tax Splitting in Germany: How Would it Affect the Income Distribution and Work Incentives?

29 Pages Posted: 5 Sep 2006

See all articles by Viktor Steiner

Viktor Steiner

Zentrum Fuer Europaeische Wirtschaftsforschung (ZEW) - Center for European Economic Research; IZA Institute of Labor Economics

Katharina Wrohlich

DIW Berlin, German Institute for Economic Research

Date Written: August 2006

Abstract

We analyze the effects of three alternative proposals to reform the taxation of families relative to the current German system of joint taxation of couples and child allowances: a French-type family splitting and two full family splitting proposals. The empirical analysis of the effects of these proposals on the income distribution and on work incentives is based on a behavioral micro-simulation model which integrates an empirical household labor supply model into a detailed tax-benefit model based on the German Socio Economic Panel. Our simulation results show that under each reform the lion's share of the reduction in taxes would accrue to families with children in the upper part of the income distribution, and that expected labor supply effects are small for all analyzed family tax splitting reforms, both in absolute terms and relative to the implied fiscal costs.

Keywords: household taxation, income distribution, work incentives, microsimulation

JEL Classification: H24, H31, J22

Suggested Citation

Steiner, Viktor and Wrohlich, Katharina, Introducing Family Tax Splitting in Germany: How Would it Affect the Income Distribution and Work Incentives? (August 2006). IZA Discussion Paper No. 2245. Available at SSRN: https://ssrn.com/abstract=928368

Viktor Steiner (Contact Author)

Zentrum Fuer Europaeische Wirtschaftsforschung (ZEW) - Center for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1 D-68161 Mannheim
Germany

IZA Institute of Labor Economics

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

Katharina Wrohlich

DIW Berlin, German Institute for Economic Research ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

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