Estimating the incidence of and behavioral responses to tax reforms

• Applicant: Professor Dr. Andreas Peichl
• Subject Area: Economic Policy, Applied Economics
• Term: from 2015 to 2018
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 264934769

We aim to examine the behavioral responses of individuals, private households and firms to taxes and public transfers. The research proposal intends to contribute to the causal identification of the effects of reforms in the tax and transfer system. These effects are of major significance for the optimal design of tax and transfer systems and, therefore, not only relevant for the academic debate, but also for the public policy discussion. The German case serves as a highly appropriate context to pursue the goals of our proposal since numerous reforms were implemented throughout the past decade, which can be investigated using administrative data that have become more accessible to researchers recently. In the course of our project we first estimate the elasticity of taxable income (ETI), the key parameter for the evaluation of welfare and efficiency effects of tax reforms. In a second step, we examine whether and how tax deductions are exploited to adjust the ETI and reduce tax burdens. We further analyze how taxation affects labor supply decisions of households and in particular the behavior of secondary earners (for example through income splitting). In addition, firm responses to taxes are investigated in the context of the local business tax ("Gewerbesteuer") and the most recent VAT reform. The behavioral parameters we wish to identify in these projects allow deriving the efficiency and distributional effects of the German tax and transferring system, and can help to evaluate existing and new reform proposals.

• DFG Programme: Research Grants
• Co-Investigator: Professorin Dr. Andrea Weber