Shifting taxes from labor to consumption : more employment and more inequality


Pestel, Nico ; Sommer, Eric


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URL: https://ub-madoc.bib.uni-mannheim.de/39472
URN: urn:nbn:de:bsz:180-madoc-394727
Document Type: Working paper
Year of publication: 2015
The title of a journal, publication series: ZEW Discussion Papers
Volume: 15-042
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: C63 , D31 , H23,
Keywords (English): Germany , income and payroll taxes , consumption taxes , microsimulation , inequality
Abstract: This paper investigates the effect of shifting taxes from labor income to consumption on labor supply and the distribution of income in Germany. We simulate stepwise increases in the value-added tax (VAT) rate, which are compensated by revenue-neutral reductions in income-related taxes. We differentiate between the personal income tax (PIT) and social security contributions (SSC). Based on a dual data base and a microsimulation model of household labor supply behavior, we find a regressive impact of such a tax shift in the short run. When accounting for labor supply adjustments, the adverse distributional impact persists for PIT reductions, while the overall effects on inequality and progressivity become lower when payroll taxes are reduced. This is partly due to increases in aggregate labor supply, resulting from higher work incentives.

Das Dokument wird vom Publikationsserver der Universitätsbibliothek Mannheim bereitgestellt.




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Pestel, Nico ; Sommer, Eric (2015) Shifting taxes from labor to consumption : more employment and more inequality. Open Access ZEW Discussion Papers Mannheim 15-042 [Working paper]
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