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

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: arqus Discussion Paper ; No. 177

Classification and Topics

• Classification: Wirtschaft ; Statistical Simulation Methods: General ; Fiscal Policies and Behavior of Economic Agents: General ; Tax Law
• Subject: Alternative tax treatments ; Employment tax credits ; Inheritance tax ; Simulation

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Franke, Benedikt ; Simons, Dirk ; Voeller, Dennis
• Event: Veröffentlichung
• (who): Arbeitskreis Quantitative Steuerlehre (arqus)
• (where): Berlin
• (when): 2014

Further information

• Handle: http://hdl.handle.net/10419/103463
• Last update: 10.03.2025, 11:43 AM CET