Reforming family taxation in Germany: Labor supply vs. insurance effects

Arbeitspapier

The present paper quantifies the economic consequences of eliminating the system of income splitting in Germany. We apply a dynamic simulation model with overlapping generations where single and married agents have to decide on labor supply and homework facing income and lifespan risk. The numerical exercise computes the resulting welfare changes across households and isolates aggregate efficiency effects of a move towards either individual taxation or family splitting. Our results indicate strongly that a switch towards individual taxation performs best in terms of economic efficiency due to reduced labor market distortions and improved insurance provision. In our benchmark calibration the efficiency gain amounts to roughly 0.4 percent of aggregate resources. Excluding home production significantly reduces aggregate efficiency gains while including marital risk slightly improves the efficiency of individual taxation.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: SOEPpapers on Multidisciplinary Panel Data Research ; No. 613

Classification and Topics

• Classification: Wirtschaft ; Taxation and Subsidies: Efficiency; Optimal Taxation ; Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes ; Marriage; Marital Dissolution; Family Structure; Domestic Abuse ; Time Allocation and Labor Supply
• Subject: stochastic general equilibrium ; home production ; female labor supply ; tax unit choice ; insurance provision

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Fehr, Hans ; Kallweit, Manuel ; Kindermann, Fabian
• Event: Veröffentlichung
• (who): Deutsches Institut für Wirtschaftsforschung (DIW)
• (where): Berlin
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/90169
• Last update: 10.03.2025, 11:41 AM CET