How do employment tax credits work? An analysis of the German inheritance tax

Benedikt Franke, Dirk Simons and Dennis Voeller

No 177, arqus Discussion Papers in Quantitative Tax Research from arqus - Arbeitskreis Quantitative Steuerlehre

Abstract: Employment tax credit programs have been repeatedly used during economic crises, although their usefulness is empirically contestable. The objective of this paper is to quantify the tax effects of employment tax credit programs. A recent revision of the German inheritance tax law provides an eminent opportunity to analyze the effects caused by such a preferential treatment. The tax liability depends on a company's future employment expenses. Hence, we use micro-level data of realized business transfers from the German Inheritance Tax Statistic and combine them with a simulation of the future development of employment over the relevant time-horizon. We identify the magnitude of tax reductions granted to business transfers under a preferential treatment. Further, we demonstrate that these reductions are considerably larger in times of economic growth. Our findings also suggest that employment tax credits have pro-cyclical effects and specifically foster transfers between unrelated parties. Finally, the preferential treatment of business transfers does not provide incentives to increase employment.

Keywords: Alternative tax treatments; Employment tax credits; Inheritance tax; Simulation (search for similar items in EconPapers)
JEL-codes: C15 H30 K34 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-eur, nep-law and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:arqudp:177

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