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


Franke, Benedikt ; Simons, Dirk ; Voeller, Dennis


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URL: https://ub-madoc.bib.uni-mannheim.de/37323
URN: urn:nbn:de:bsz:180-madoc-373235
Document Type: Working paper
Year of publication: 2014
The title of a journal, publication series: ZEW Discussion Papers
Volume: 14-090
Place of publication: Mannheim
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: C15 , H30 , K34,
Keywords (English): Alternative tax treatments , employment tax credits , inheritance tax , simulation
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.

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Franke, Benedikt ; Simons, Dirk ; Voeller, Dennis (2014) How do employment tax credits work? : an analysis of the German inheritance tax. Open Access ZEW Discussion Papers Mannheim 14-090 [Working paper]
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