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

Viktor Steiner and Katharina Wrohlich ()

No 421, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: We analyze potential labor supply effects of a shift from the current German system of taxation of married couples to a system of limited real income splitting on the basis of 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 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-codes: H31 H24 J22 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cmp and nep-lab
Date: 2004
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