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Happy Taxpayers? Income Taxation and Well-Being

Author

Listed:
  • Akay, Alpaslan

    (University of Gothenburg)

  • Bargain, Olivier B.

    (Université de Bordeaux)

  • Dolls, Mathias

    (Ifo Institute for Economic Research)

  • Neumann, Dirk

    (Federal Ministry for Economic Affairs and Climate Action (BMWK), Germany)

  • Peichl, Andreas

    (Ludwig-Maximilians-Universität München)

  • Siegloch, Sebastian

    (University of Cologne)

Abstract

This paper offers a first empirical investigation of how labor taxation (income and payroll taxes) affects individuals' well-being. For identification, we exploit exogenous variation in tax rules over time and across demographic groups using 26 years of German panel data. We find that the tax effect on subjective well-being is significant and positive when controlling for income net of taxes. This interesting result is robust to numerous specification checks. It is consistent with several possible channels through which taxes affect welfare including public goods, insurance, redistributive taste and tax morale.

Suggested Citation

  • Akay, Alpaslan & Bargain, Olivier B. & Dolls, Mathias & Neumann, Dirk & Peichl, Andreas & Siegloch, Sebastian, 2012. "Happy Taxpayers? Income Taxation and Well-Being," IZA Discussion Papers 6999, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp6999
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    1. Verena Lauber & Johanna Storck, 2016. "Helping with the Kids? How Family-Friendly Workplaces Affect Parental Well-Being and Behavior," SOEPpapers on Multidisciplinary Panel Data Research 883, DIW Berlin, The German Socio-Economic Panel (SOEP).
    2. Verena Lauber & Johanna Storck, 2016. "Helping with the Kids? How Family-Friendly Workplaces Affect Parental Well-Being and Behavior," Discussion Papers of DIW Berlin 1630, DIW Berlin, German Institute for Economic Research.
    3. Jingjing Wang & Decai Tang, 2023. "Air Pollution, Environmental Protection Tax and Well-Being," IJERPH, MDPI, vol. 20(3), pages 1-15, January.
    4. Boyd-Swan, Casey & Herbst, Chris M. & Ifcher, John & Zarghamee, Homa, 2013. "The Earned Income Tax Credit, Health, and Happiness," IZA Discussion Papers 7261, Institute of Labor Economics (IZA).
    5. Boyd-Swan, Casey & Herbst, Chris M. & Ifcher, John & Zarghamee, Homa, 2016. "The earned income tax credit, mental health, and happiness," Journal of Economic Behavior & Organization, Elsevier, vol. 126(PA), pages 18-38.
    6. Aart Gerritsen & Bas Jacobs, 2020. "Is a Minimum Wage an Appropriate Instrument for Redistribution?," Economica, London School of Economics and Political Science, vol. 87(347), pages 611-637, July.
    7. Alexander Pacek & Benjamin Radcliff & Mark Brockway, 2019. "Well-Being and the Democratic State: How the Public Sector Promotes Human Happiness," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 143(3), pages 1147-1159, June.
    8. Odermatt, Reto & Stutzer, Alois, 2017. "Subjective Well-Being and Public Policy," IZA Discussion Papers 11102, Institute of Labor Economics (IZA).
    9. Andreoli, Francesco & Olivera, Javier, 2020. "Preferences for redistribution and exposure to tax-benefit schemes in Europe," European Journal of Political Economy, Elsevier, vol. 63(C).
    10. Herbst, Chris M. & Lucio, Joanna, 2014. "Happy in the Hood? The Impact of Residential Segregation on Self-Reported Happiness," IZA Discussion Papers 7944, Institute of Labor Economics (IZA).
    11. Raluca Tudorică & Sorana Vătavu, 2020. "Are happier taxpayers willing to pay higher taxes?," Journal of Financial Studies, Institute of Financial Studies, vol. 9(5), pages 72-85, November.
    12. Robert MacCulloch, 2017. "How political systems and social welfare policies affect well-being: A literature review," Working Papers 17_14, Motu Economic and Public Policy Research.
    13. Ferrer-i-Carbonell, Ada & Gërxhani, Klarita, 2016. "Tax evasion and well-being: A study of the social and institutional context in Central and Eastern Europe," European Journal of Political Economy, Elsevier, vol. 45(S), pages 149-159.
    14. Iban Ortuzar & Gemma Renart & Angels Xabadia, 2021. "Effects of Public Healthcare Budget Cuts on Life Satisfaction in Spain," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 156(1), pages 311-337, July.
    15. DUCRAY François, 2015. "Should we change national assistance for students and their families?," Cahiers du GREThA (2007-2019) 2015-23, Groupe de Recherche en Economie Théorique et Appliquée (GREThA).

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    More about this item

    Keywords

    subjective well-being; taxation; public goods;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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