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Introducing Family Tax Splitting in Germany: How Would It Affect the Income Distribution, Work Incentives and Household Welfare?

Viktor Steiner and Katharina Wrohlich ()

No 44, SOEPpapers on Multidisciplinary Panel Data Research from DIW Berlin, The German Socio-Economic Panel (SOEP)

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. If budgetary balance were financed by a lump-sum reduction of the child benefit, our results suggest that none of the reforms would be elfareimproving.

Keywords: Household Taxation; Income Distribution; Work Incentives; Microsimulation (search for similar items in EconPapers)
JEL-codes: H24 H31 J22 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cmp
Date: 2007
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Journal Article: Introducing Family Tax Splitting in Germany: How Would It Affect the Income Distribution, Work Incentives, and Household Welfare? (2008) Downloads
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