20.12.2023 Taxation#

Ways of Government Revenue:

  • Taxation

  • Debt

  • Fees / Contributions (Sozialabgaben)

  • Sales of Government Assets

General#

Tax (Legal): Cash Payment to State from everyone

Tax (Economic): compulsory levy without specific service in return

Economic = more broad, also non-financial e.g jury duty

German Taxes#

  • Earnings (Lohnsteuer)

  • Income (Einkommensteuer)

    • Individual income tax

    • capital gains tax

  • Corporate Income (Körperschaftssteuer)

  • Wealth

    • Wealth Taxes (sadly do not exist currently)

    • Property taxes (Grundsteuer)

    • Estate taxes (Erbschaftsteuern)

  • Consumption

    • Sales Tax (Mehrwertsteuer)

    • Excise tax (Zigaretten, Alkohol, …)

Assignemt to Budgets of

  • Federal: excise taxes

  • State: grunderwerbsteuer

  • Local: grundsteuer

  • divided: Einkommensteuer (Gemeinschaftsteuer)

Revenues#

of different Taxes

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Effective Tax Rates on Income

img

Red = effective Tax, green = marginal tax

marginal tax rate: percentage of the next euro of taxable income paid

effective tax rate: percentage of total income paid

Fairness#

Principles:

Vertical equity: higher income = higher taxes

Horizontal equity: similar people = similar taxes

Tax Base#

what income should be taxed? (Exemptions etc.)

Haig-Simons: focus on individuals ability to pay

  • assess monetary gains of perks (e.g company cars)

  • leads to higher equity

Measurement

  • Total consumption + Wealth Increases

  • deduct

    • business expenses

    • undesired consumption (e.g medical expenses)

Exception: Reducing Taxes on Activities with external Benefits

  • charitable giving

  • housing expenditure

Reasons for charity deduction:

  • Crowd In of additional money (marginal effect)

    • but lower gov. Spending (inframarginal impact)

    • empirical: some crowd in

  • consumer sovereignty

    • But: most people do not reasearch

    • gifts without benefit to targe

  • Housing Subsidy

    • for positive externality (does not exist)

    • no more houses bought

    • just for rich people

Unit of Taxation#

Household Members / Individual / Spoues

German example: Ehegattensplitting

  • Add up Incomes of both Spouses

  • divide by 2 => then add exemptions etc

leads to:

  • marriagy subsidy

  • lower incentives for work (for low earner)

  • distort decisions

  • ignores children

other countries:

  • Individual (19 OECD Countries)

  • Family Splitting with number of kids (US, Norway, …)

  • like Germany = Luxembourg