Shifting the tax burden from labor to property: the case of Germany

Publication type

Research Paper

Series Number

2016-03

Series

University of Salzburg Working Papers in Economics

Authors

Publication date

July 15, 2016

Summary:

Contrary to frequent recommendations of the public finance literature and international
institutions, a persistently high tax wedge on labor is observed in Europe. At the same time,
the scope for shifting taxes from labor to more growth-friendly revenue sources appears
underused in many European countries. This motivates our simulation of a revenue-neutral
property tax reform for Germany, a country in which tax receipts from land are particularly
low. More precisely, we assess by how much social insurance contributions (SIC) can be
reduced when Germany switches from its current property tax scheme based on outdated
cadastral values to one based on market property values. In order to make such a simulation
possible, we match property related information with the input dataset of EUROMOD, the
tax-benefit simulation model for the EU. Our results suggest that the implicit tax rate on
labor could be reduced from currently 37,2% to 36,5%. Furthermore, we simulate different
scenarios of the SIC reduction. Redistributive effects of these different scenarios tend to
be modest and depend crucially on the design of the SIC reduction.

Subjects

Link

https://www.uni-salzburg.at/fileadmin/multimedia/SOWI/documents/working_papers/Workingpaper_2016_03.pdf

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