Why Are Mothers Working Longer Hours in Austria than in Germany? A Comparative Microsimulation Analysis

Abstract

Labour force participation rates of mothers in Austria and Germany are similar; however, full-time employment rates are much higher among Austrian mothers. In order to find out to what extent these differences can be attributed to differences in the tax-transfer system, we perform a comparative microsimulation exercise. After estimatingstructural labour supply models for both countries, we interchange two important institutional characteristics of the two countries - namely, (i) the definition of the tax unit within the personal income tax and (ii) the parental leave benefit scheme. As our analysis shows, differences in mothers-employment patterns can partly be explained by the different tax systems: while Germany has a system of joint taxation with income splitting for married couples, Austria taxes everyone individually, which leads to lower marginal tax rates for secondary earners than in the German system.