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Reform of Income Splitting for Married Couples: Only Individual Taxation Significantly Increases Working Incentives

DIW Weekly Report 5 / 2011, S. 13-19

Stefan Bach, Johannes Geyer, Peter Haan, Katharina Wrohlich

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Abstract

The joint taxation of married couples in Germany with full income splitting is still a major hindrance to the participation of married women in the labor market. In their current financial proposals, the SPD (Social Democratic Party) is calling for income splitting for married couples to be replaced by individual taxation with maintenance deductions, in accordance with existing schemes for divorced spouses. Simulations implemented by DIW Berlin show that such a reform would only have limited effects on distribution and labor supply. Pure individual taxation, however, would not only lead to significant additional tax revenue but would also considerably increase the number of married women participating in the labor market. If politicians take the goal of greater integration of married women in the labor market seriously, then the current income splitting for married couples would have to be replaced by individuation taxation.

Stefan Bach

Research Associate in the Public Economics Department

Johannes Geyer

Deputy Head in the Public Economics Department

Peter Haan

Head of Department in the Public Economics Department

Katharina Wrohlich

Head in the Gender Economics Department



JEL-Classification: H24;H31;J22
Keywords: Working incentives, joint taxation of couples, female labor supply
Frei zugängliche Version: (econstor)
http://hdl.handle.net/10419/57685

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