The effects of income taxation on severance pay

Laszlo Goerke and Markus Pannenberg

Labour Economics, 2009, vol. 16, issue 1, 107-118

Abstract: Severance pay often results from a bargain between the firm and the employee to avoid or terminate a legal conflict. We theoretically investigate how income taxation affects these negotiations. Using panel data from West Germany and exploiting a change in tax law in 1999, we find that a higher income tax on severance pay reduces the probability of obtaining it and - in some specifications - also lowers its amount. Our results imply overshifting of the increase in the tax burden.

Keywords: Severance; pay; Income; taxation; Survey; data (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (6)

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