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Distributional and revenue effects of a tax shift from labor to property
[journal article]
Abstract Contrary to frequent recommendations of the public finance literature and international institutions, a persistently high tax wedge on labor is observed in Europe. Simultaneously, the scope for shifting taxes to more growth-friendly revenue sources appears underused. This motivates our simulation of... view more
Contrary to frequent recommendations of the public finance literature and international institutions, a persistently high tax wedge on labor is observed in Europe. Simultaneously, the scope for shifting taxes to more growth-friendly revenue sources appears underused. This motivates our simulation of a tax shift from labor to property for Germany, a country where property tax revenues are particularly low and the tax wedge on labor income is among the highest in industrialized countries. We simulate a reform where property is no longer taxed by its (often) outdated cadastral value but by its market value, using the additional revenue to reduce social insurance contributions (SIC). To make such a simulation possible, we match property-related information with the input data of the tax-benefit microsimulation model EUROMOD. We find a considerable increase in property tax revenues, allowing to reduce the implicit tax rate on labor from 37.2 to 36.5%. Distributive effects tend to be modest and depend on the design of the SIC reduction. Overall, our results suggest that more households would gain than lose from the tax shift, with gainers mostly situated in the middle of the income distribution.... view less
Keywords
withholding tax; property tax; taxes; direct taxes; Federal Republic of Germany; tax reform; simulation
Classification
Public Finance
Free Keywords
Labor taxes; Property taxes; Microsimulations; EUROMOD; European Union Statistics on Income and Living Conditions (EU-SILC); Household Finance and Consumption Survey (HFCS)
Document language
English
Publication Year
2018
Page/Pages
p. 1215-1251
Journal
International Tax and Public Finance, 25 (2018) 5
DOI
https://doi.org/10.1007/s10797-018-9484-5
ISSN
1573-6970
Status
Published Version; peer reviewed