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

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.

Financial Student Aid and Enrollment into Higher Education: New Evidence from Germany

We estimate the elasticity of enrollment into higher education with respect to the amount of means tested student aid (BAfoeG) provided by the federal government using the German Socioeconomic Panel (SOEP). Potential student aid is derived on the basis of a detailed tax-benefit microsimulation model. Since potential student aid is a highly non-linear and discontinuous function of parental income, the effect of BAfoeG on students’ enrollment decisions can be identified separately from parental income and other family background variables. We find a small but significant positive elasticity similar in size to those reported in previous studies for the United States and other countries.higher education, financial incentives, competing risk model

Work Incentives and Labor Supply Effects of the 'Mini-Jobs Reform' in Germany

We analyze the work incentives and labor supply effects of the so-called mini-jobs reform (subsidies of social security contributions to people with low-earnings jobs) introduced in Germany in April 2003. The analysis is based on a structural labor supply model embedded in a detailed tax-benefit microsimulation model for which we use the German Socio-Economic Panel (GSOEP). Our simulation results show that the likely employment effects of the mini-jobs reform will be small. The small positive participation effect is outweighed by a negative hours effect among already employed workers. The fiscal effects of the reform are also likely to be negative. We conclude that the analyzed mini-job reform is not an effective policy to increase employment of people with low earnings capacity.Mini-Job

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

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.Household Taxation, Income Distribution, Work Incentive, Microsimulation

Minijob-Reform: No Effect on Unemployment, Losses in Income Tax and Social Security Contributions

The so-called 'Minijob-reform', that was introduced in April 2003 as part of the 'Hartz II'-reform, was intended to increase work incentives for people with low wages and thereby reduce structural unemployment. Therefore, the hours restriction of 15 hours per week was abolished and the threshold up to which earnings remain free of social security contributions (SSC) was increased. We calculate the labor market effects and the effects on income tax and SSC on the basis of a micro simulation model. The analysis also includes indirect effects on total income tax and SSC resulting from the labor market effects of the reform. These effects consist of both, the effects from people not employed before the reform and the effects from people who were already working before the reform and whose labor supply reactions mostly remain disregarded in the political debate. The estimations show that the 'Minijob-reform' led to a small increase in the number of people in marginal employment. The effects on employment in secondary jobs and the potential legalization of illicit work are, however, not taken into account in this analysis. Persons who have already been working before the reform reduce their working hours. This leads to a small decrease in total working hours throughout the population.

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

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.Household Taxation, Income Distribution, Work Incentives, Microsimulation

Financial Student Aid and Enrollment into Higher Education: New Evidence from Germany

We estimate the elasticity of enrollment into higher education with respect to the amount of means tested student aid (BAfoeG) provided by the federal government using the German Socioeconomic Panel (SOEP). Potential student aid is derived on the basis of a detailed taxbenefit microsimulation model. Since potential student aid is a highly non-linear and discontinuous function of parental income, the effect of BAfoeG on students' enrollment decisions can be identified separately from parental income and other family background variables. We find a small but significant positive elasticity similar in size to those reported in previous studies for the United States and other countries.Higher Education, Financial Incentives, Competing Risk Model

Minijob-Reform: keine durchschlagende Wirkung

Die sog. Minijob-Reform, die als Teil des Zweiten Gesetzes für moderne Dienstleistungen am Arbeitsmarkt ("Hartz II") am 1. April 2003 in Kraft trat, soll die Arbeitsanreize im Bereich geringer Erwerbseinkommen verbessern und damit die strukturelle Arbeitslosigkeit reduzieren. Dazu wurde die bisherige Beschränkung der wöchentlichen Arbeitszeit auf maximal 15Stunden aufgehoben und die Geringfügigkeitsgrenze bei der Sozialversicherung erhöht. Die Arbeitsmarktwirkungen und die Effekte der Reform auf Steueraufkommen und Sozialversicherungsbeiträge wurden vom DIW Berlin auf der Basis eines Mikrosimulationsmodells untersucht. Dabei sind auch indirekte Effekte, die sich aus den Arbeitsmarktwirkungen auf das Einkommensteueraufkommen und auf die Arbeitnehmerbeiträge zur Sozialversicherung ergeben, berechnet worden. Es wurden nicht nur die Wirkungen der Reform auf das Arbeitsangebot der bisher nicht erwerbstätigen Personen, sondern auch die in der wirtschaftspolitischen Diskussion häufig unberücksichtigten Effekteauf das Arbeitsangebot der bereits Beschäftigten analysiert. Die Schätzungen zeigen, dass die Minijob-Reform mit einer geringen Zunahme der Zahl der ausschließlich geringfügig beschäftigten Personen verbunden sein dürfte. Unberücksichtigt bleiben bei der Analyse mögliche Effekte auf den Umfang der Nebenerwerbstätigkeit und auf die eventuelle Legalisierung der bisherigen Schwarzarbeit. Gleichzeitig ist aber zu erwarten, dass aufgrund der Reform bereits Beschäftigte ihre Arbeitszeit reduzieren. Unter dem Strich dürfte daherdas gesamte Arbeitsvolumen leicht sinken.

Familiensplitting begünstigt einkommensstarke Familien, geringe Auswirkungen auf das Arbeitsangebot

Aktuell wird von verschiedenen Seiten ein Familiensplitting als Alternative bzw. Weiterentwicklung des derzeitigen Ehegattensplittings vorgeschlagen. Davon erwarten sich viele eine stärkere steuerliche Entlastung von Familien mit Kindern und positive Arbeitsanreizwirkungen für Mütter. Ein Vergleich dreier verschiedener Familiensplitting-Varianten zeigt, dass die steuerliche Entlastung durch ein Familiensplitting in erster Linie Familien im obersten Fünftel der Einkommensverteilung zugute käme. Insgesamt hängt das Ausmaß der steuerlichen Entlastung stark von der konkreten Ausgestaltung eines Familiensplittings ab. Ein Familiensplitting nach französischem Vorbild zum Beispiel hätte für Familien mit ein oder zwei Kindern so gut wie keine zusätzliche steuerliche Entlastungswirkung. Größere Arbeitsanreizwirkungen und Selbstfinanzierungseffekte durch eine Zunahme des Arbeitsangebots sind von keiner der drei hier vorgestellten Reform-Varianten zu erwarten, da die gemeinsame Besteuerung und damit der relativ hohe Grenzsteuersatz für Zweitverdiener im Familiensplitting erhalten bleiben. Deutliche Arbeitsangebotswirkungen wären hingegen von einem Wechsel hin zu einer Individualbesteuerung zu erwarten.