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The Effects of Income Taxation on Severance Pay

Aufsätze referiert extern - Web of Science

Laszlo Goerke, Markus Pannenberg

In: Labour Economics 16 (2009), 1, S. 107-118


Severance pay often results from a bargain between the firm and the employee to avoid or terminate a legal conflict. We theoretically investigate how income taxation affects these negotiations. Using panel data from West Germany and exploiting a change in tax law in 1999, we find that a higher income tax on severance pay reduces the probability of obtaining it and - in some specifications - also lowers its amount. Our results imply overshifting of the increase in the tax burden.

JEL-Classification: J65;H24;C23;C24
Keywords: Severance pay, Income taxation, Survey data