Designing an Integrated Social Transfer System

Maximilian Blömer, Eike Johannes Eser, Lilly Fischer and Andreas Peichl

in ifo Forschungsberichte from ifo Institute - Leibniz Institute for Economic Research at the University of Munich

Abstract: The German transfer system – comprising citizen’s income, housing benefit, and additional child benefit – is complex, has high marginal tax rates and weak work incentives. Using the ifo microsimulation model, two reform paths are evaluated: a unified transfer system, and a pragmatic solution which merges only housing benefit and additional child benefit. Both simplify structures and strengthen work incentives, with the unified transfer system achieving the strongest results: an increase in labor supply of 149,000 full-time equivalents and fiscal savings of about EUR 4.5 billion. The partial integration also yields positive, though smaller, improvements.

Date: 2025
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