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Horizontal equity in the German tax-benefit system: A simulation approach for employees

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  • Bönke, Timm
  • Eichfelder, Sebastian

Abstract

We analyze the distributive justice of the combined burden of taxes, social security contributions and public transfers on employee households. In order to investigate whether the treatment of families by the aggregate tax-benefit system can be regarded as 'fair', we compare the equivalent incomes of eight different household types. Using the concepts of system-inherent equivalence scales and horizontal equity we find evidence for a structural discrimination of low income families, while families in the high income brackets tend to be privileged. The equity in the treatment of a household type is not only affected by the amount but also by the distribution of income between the household members. Based on these results we can state a significant contradiction of value judgments within the German tax-benefit system. From the perspective of our paper, there is no convincing justification for this inconsistency.

Suggested Citation

  • Bönke, Timm & Eichfelder, Sebastian, 2010. "Horizontal equity in the German tax-benefit system: A simulation approach for employees," Discussion Papers 2010/1, Free University Berlin, School of Business & Economics.
    • Handle: RePEc:zbw:fubsbe:20101
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    References listed on IDEAS

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    1. Jack Habib, 1979. "Horizontal Equity with Respect to Family Size," Public Finance Review, , vol. 7(3), pages 283-302, July.
    2. Gruber, Jonathan, 1997. "The Incidence of Payroll Taxation: Evidence from Chile," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages 72-101, July.
    3. Bönke, Timm & Eichfelder, Sebastian, 2008. "Horizontale Gleichheit im Abgaben-Transfersystem: eine Analyse äquivalenter Einkommen von Arbeitnehmern in Deutschland," arqus Discussion Papers in Quantitative Tax Research 36, arqus - Arbeitskreis Quantitative Steuerlehre.
    4. Donaldson, D. & Pendakur, K., 1999. "Equivalent-Income Functions and Income-Dependent Equivalence Scales," Discussion Papers dp99-8, Department of Economics, Simon Fraser University.
    5. Ebert, Udo & Moyes, Patrick, 2000. "Consistent Income Tax Structures When Households Are Heterogeneous," Journal of Economic Theory, Elsevier, vol. 90(1), pages 116-150, January.
    6. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
    7. Donaldson, David & Pendakur, Krishna, 2004. "Equivalent-expenditure functions and expenditure-dependent equivalence scales," Journal of Public Economics, Elsevier, vol. 88(1-2), pages 175-208, January.
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    Cited by:

    1. Bönke, Timm & Kemptner, Daniel & Lüthen, Holger, 2018. "Effectiveness of early retirement disincentives: Individual welfare, distributional and fiscal implications," Labour Economics, Elsevier, vol. 51(C), pages 25-37.
    2. Bartels, Charlotte & Pestel, Nico, 2016. "Short- and long-term participation tax rates and their impact on labor supply," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 23(6), pages 1126-1159.
    3. Hrvoje Simovic, 2012. "Effect of expenditures in personal income taxation on horizontal equity in Croatia," Financial Theory and Practice, Institute of Public Finance, vol. 36(3), pages 245-267.

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    More about this item

    Keywords

    horizontal equity; family taxation; distributive justice; tax-benefit system; equivalent income;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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