Demographic change and income tax revenue in Germany: a microsimulation approach

Martin Beznoska and Tobias Hentze ()
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Tobias Hentze: Public Finance Research Unit, Cologne Institute for Economic Research (IW), Koln, Germany

Public Sector Economics, 2017, vol. 41, issue 1, 71-84

Abstract: As a result of high net migration, both Germany’s overall population and its workforce potential are currently growing. However, within a few years this demographic trend will be reversed, leading to a decline in population as a whole and especially in the number of those gainfully employed. In this paper, we use a population projection to apply a static ageing approach to German micro data. Then, we simulate income tax revenue with a microsimulation model for the future population. In 20 years’ time the annual price-adjusted income tax loss is estimated to be equal to €18 billion or almost 7 per cent. This fall in income tax revenue resulting from a shrinking and ageing society will place a huge strain on public finances in Germany, an effect further enhanced by the shift of the tax burden from pension contributions to pension benefits.

Keywords: public finance; tax revenue; demographic change; microsimulation (search for similar items in EconPapers)
JEL-codes: H24 H68 J11 (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:ipf:psejou:v:41:y:2017:i:1:p:71-84

DOI: 10.3326/pse.41.1.8

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