Lifetime Earnings Inequality in Germany

Bönke, Timm; Corneo, Giacomo; Lüthen, Holger

doi:10.1086/677559

Cited by 91 publications

(44 citation statements)

References 32 publications

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“…4 Later contributions refined this argument by imposing more realistic assumptions and found commodity taxation to 3 For a treatment of lifetime inequality in a simulation context, see Creedy (1997). A recent empirical analysis of lifetime inequality among German employees can be found in Bönke et al (2015).…”

Section: Theorymentioning

confidence: 99%

Shifting Taxes from Labor to Consumption: More Employment and More Inequality

Pestel

Sommer

2015

SSRN Journal

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Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. Abstract This paper investigates the e ect of shifting taxes from labor income to consumption on labor supply and the distribution of income in Germany. We simulate stepwise increases in the value-added tax (VAT) rate, which are compensated by revenue-neutral reductions in income-related taxes. We di erentiate between the personal income tax (PIT) and social security contributions (SSC). Based on a dual data base and a microsimulation model of household labor supply behavior, we find a regressive impact of such a tax shift in the short run. When accounting for labor supply adjustments, the adverse distributional impact persists for PIT reductions, while the overall e ects on inequality and progressivity become lower when payroll taxes are reduced. This is partly due to increases in aggregate labor supply, resulting from higher work incentives. Shifting Taxes from Labor to JEL Classification: C63, D31, H23Keywords: income and payroll taxes, consumption taxes, microsimulation, inequality, Germany ú Nico Pestel (pestel@iza.org) is a liated to IZA Bonn and the Center for European Economic Research (ZEW) Mannheim. Eric Sommer (sommer@iza.org) is a liated to IZA Bonn and the University of Cologne. Corresponding author: Eric Sommer, IZA Bonn,

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Section: Theorymentioning

confidence: 99%

Shifting Taxes from Labor to Consumption: More Employment and More Inequality

Pestel

Sommer

2015

SSRN Journal

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“…German pension data cover about 80% of West German men (Bönke et al, 2015). The data does not cover periods of civil service or self-employment.…”

Section: Pension Datamentioning

confidence: 99%

The Rising Longevity Gap by Lifetime Earnings Distributional Implications for the Pension System

2017

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This study uses German social security records to provide novel evidence about the heterogeneity in life expectancy by lifetime earnings and, additionally, documents the distributional implications of this earnings-related heterogeneity. We find a strong association between lifetime earnings and life expectancy at age 65 and show that the longevity gap is increasing across cohorts. For West German men born 1926-28, the longevity gap between top and bottom decile amounts to about 4 years (about 30%). This gap increases to 7 years (almost 50%) for cohorts 1947-49. We extend our analysis to the household context and show that lifetime earnings are also related to the life expectancy of the spouse. The heterogeneity in life expectancy has sizable and relevant distributional consequences for the pension system: when accounting for heterogeneous life expectancy, we find that the German pension system is regressive despite a strong contributory link. We show that the internal rate of return of the pension system increases with lifetime earnings. Finally, we document an increase of the regressive structure across cohorts, which is consistent with the increasing longevity gap. Terms of use: Documents in

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“…Earnings information in German administrative records are top-coded since contributions to social security and pension are deducted as a share of earnings up to an annually specified wage ceiling as suggested by (Bönke et al, 2015). Since earnings beyond that wage ceiling are recorded as exactly equal to that limit, wage information in the present dataset are right-censored.…”

Section: Data and Descriptive Analysismentioning

confidence: 99%

The Effect of Partial Retirement on Labor Supply, Public Balances and the Income Distribution: Evidence from a Structural Analysis

Tolan

2017

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in August 2017Abstract This paper develops a structural dynamic retirement model to investigate effects and corresponding underlying mechanisms of a partial retirement program on labor supply, fiscal balances, and the pension income distribution. The structural approach allows for disentangling the two counteracting mechanisms that drive the employment effects of partial retirement: 1) the crowding-out from full-time employment, and 2) the movement from early retirement or unemployment to partial retirement. It also allows for investigating the role of financial compensations in a partial retirement program. Based on a unique German administrative dataset, I perform counterfactual policy simulations that analyze the role of partial retirement combined with financial subsidies and an increased normal retirement age. The results show that partial retirement extends working lives but reduces the overall employment volume. The fiscal consequences of partial retirement are negative but substantially less so when wages and pensions in partial retirement remain uncompensated. Partial retirement decreases inequality in pension income and provides a way to smooth consumption especially for retirees in lower income deciles in the context of an increased normal retirement age.JEL: C61, J26, H55

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Lifetime Earnings Inequality in Germany

Cited by 91 publications

References 32 publications

Shifting Taxes from Labor to Consumption: More Employment and More Inequality

Shifting Taxes from Labor to Consumption: More Employment and More Inequality

The Rising Longevity Gap by Lifetime Earnings Distributional Implications for the Pension System

The Effect of Partial Retirement on Labor Supply, Public Balances and the Income Distribution: Evidence from a Structural Analysis

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