The Impact of Income Taxation on the Ratio between Reservation and Market Wages and the Incentives for Labour Supply

Aufsätze referiert extern - Web of Science

Marco Caliendo, Ludovica Gambaro, Peter Haan

In: Applied Economics Letters 16 (2009), 9, S. 877-883

Abstract

This article extends previous research about the determinants of reservation wages by analysing the effect of progressive income taxation on the ratio between reservation and net market wages. Based on micro data for Germany Socio-Economic-Panel (SOEP) we show that joint income taxation in Germany which discriminates by marital status, has a strong and highly significant impact on the reservation/market wage ratio. Relative to single filers, this leads to strong negative labour supply incentives for secondary earners and to positive incentives for first earners in married couples.

Ludovica Gambaro

Research Associate in the Education and Family Department

Peter Haan

Head of Department in the Public Economics Department

Topics: Taxes