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Professions, entrepreneurs, employees and the new German tax (cut) reform 2000 - A MICSIM microsimulation analysis of distributional impacts

Joachim, Merz and Henning, Stolz and Markus, Zwick (2002): Professions, entrepreneurs, employees and the new German tax (cut) reform 2000 - A MICSIM microsimulation analysis of distributional impacts.

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Abstract

With the tax reform 2000 Germany has seen the implementation of the most ambitious tax reduction programme in its post-war history. In the period from 1998 to 2005, taxpayers will benefit substantially from net tax relief more than DM 100 billions in total. It is expected, that private consumption and investment are stimulated - two essential requirements for promoting growth and employment. Under the aspect of the tax reform 2000 and the ‘Karlsruher Entwurf’ (an expert draft on further income tax reform approaches) compared to the former taxbase system we investigate in our paper overall and distributional and redistributional impacts on the self employed (professions (free lancers) and entrepreneurs) and employees besides other socioeconomic grouping like gender and family type. In addition, a decomposition analysis based on a generalized entropy approach quantifies the socioeconomic subgroups’ inequality contribution to overall inequality. Together with the recent poverty and wealth report for our government, this is the first time that the anonymized microdata records of the German Income Tax Statistic can be used by researchers within the Federal Statistical Office. Such a microdata file is essential for analysing above all the often neglected situation of the self-employed; in traditional surveys, where, in principle, firm information yielding the final income and taxes to be paid are not available for the self-employed. Keywords: microsimulation, German tax reform, Karlsruhe proposal, self-employed, professions, entrepreneurs, employees, distributional and redistributional policy impacts, inequality and decomposition of inequality

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