Incentive and Redistribution Effects of the „Karlsruher Entwurf zur Reform des Einkommensteuergesetzes“ | The Case of Married Couples

This paper studies the economic incentives and distributional impacts of a recent tax reform proposal, the "Karlsruher Entwurf zur Reform des Einkommensteuergesetzes", on married couples in the Federal Republic of Germany. The approach is based on GMOD, a comprehensive microsimulation model for taxes, social security contributions and transfers in the Federal Republic of Germany, which is combined with a microeconometric behavioral model. The main findings of the paper are: (1) Most families profit from the reform. (2) Women with children tend to work less. (3) Inequality increases mainly due to a redistribution towards families with children. (4) On average, absolute cash gains increase, but relative cash gains decline with increasing gross household incomes. (5) The main winners of the reform are families with children