Household Taxation, Income Splitting and Labor Supply Incentives – A Microsimulation Study for Germany

Viktor Steiner and Katharina Wrohlich

CESifo Economic Studies, 2004, vol. 50, issue 3, 541-568

Abstract: We analyze potential labor supply effects of a shift from the current German system of joint taxation of married couples to a system of limited real income splitting on the basis of an econometric household labor supply model embedded in a tax benefit model. Our simulation results show relatively small labor supply effects of a shift from the current system to one of limited real income splitting system. In the benchmark scenario of a shift to separate taxation labor supply of wives would increase substantially in west Germany, while a significant number of husbands would drop out of the labor force. (JEL H31, H24, J22)

Date: 2004
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