Severance pay and the shadow of the law : evidence for West Germany

Arbeitspapier

Due to the complexity of employment protection legislation (EPL) in Germany, there is notable uncertainty about the outcomes of dismissal conflicts. In this study we focus on severance pay and inquire whether its incidence and level varies in a systematic manner with the legal rules as defined by labour as well as tax law. We start with a theoretical model that generates the main observable outcomes of dismissal conflicts as potential equilibrium situations. Using German panel data (GSOEP), we put our theoretical model to an empirical test. Our main result is that the shadow of the law matters. Criteria regarding the validity of dismissals either found in respective legislation or defined by labour courts significantly affect the incidence and magnitude of severance pay. Moreover, restrictive changes in the taxation of severance pay have a negative causal impact on its incidence.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 1619

Classification and Topics

• Classification: Wirtschaft ; Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes ; Labor Law ; Single Equation Models; Single Variables: Truncated and Censored Models; Switching Regression Models; Threshold Regression Models ; Single Equation Models; Single Variables: Panel Data Models; Spatio-temporal Models ; Unemployment Insurance; Severance Pay; Plant Closings
• Subject: severance pay ; labour law ; taxation ; sample selection ; survey data ; Abfindung ; Kündigungsschutz ; Steuerrechtsprechung ; Spieltheorie ; Schätzung ; Theorie ; Deutschland

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Goerke, Laszlo ; Pannenberg, Markus
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2005

Further information

• Handle: http://hdl.handle.net/10419/19083
• Last update: 10.03.2025, 11:45 AM CET