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Getting out of the Second Earner Trap: Reform Proposals to Reduce Misaligned Incentives in the German Tax and Social Security System

Author

Listed:
  • Maximilian Joseph Blömer
  • Przemyslaw Brandt
  • Andreas Peichl
Abstract
In the study on which this report is based, we examined closely the oft-discussed proposals for reforms aimed at improving employment incentives for second earners in a household. To quantify the effects of the proposed reforms on labor supply, we used the ifo microsimulation model, an empirically estimated structural labor supply model in a household context. Our research shows that reforming spousal taxation by introducing a so-called real splitting model, that is, by limiting the income splitting bonus with a maximum carry-over amount of €13,805 would strengthen the incentive for secondary earners to expand their labor supply. Increases in the female labor supply would account in large part for the reform’s positive employment effects. Combining this reform with a reform of mini- and midi-job regulations could eliminate other incentive problems: Women in particular could thus escape the "secondary earner trap" into which they fall or are in danger of falling by working only a limited number of hours.

Suggested Citation

  • Maximilian Joseph Blömer & Przemyslaw Brandt & Andreas Peichl, 2021. "Getting out of the Second Earner Trap: Reform Proposals to Reduce Misaligned Incentives in the German Tax and Social Security System," ifo Forschungsberichte, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 126.
    • Handle: RePEc:ces:ifofob:126
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    References listed on IDEAS

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    1. Löffler, Max & Peichl, Andreas & Siegloch, Sebastian, 2013. "Validating Structural Labor Supply Models," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79819, Verein für Socialpolitik / German Economic Association.
    2. Viktor Steiner & Katharina Wrohlich, 2004. "Household Taxation, Income Splitting and Labor Supply Incentives – A Microsimulation Study for Germany," CESifo Economic Studies, CESifo Group, vol. 50(3), pages 541-568.
    3. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    4. Goebel Jan & Grabka Markus M. & Liebig Stefan & Kroh Martin & Richter David & Schröder Carsten & Schupp Jürgen, 2019. "The German Socio-Economic Panel (SOEP)," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 239(2), pages 345-360, April.
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    Cited by:

    1. Holger Bonin & Ulf Rinne, 2022. "Die Zeitenwende erreicht den deutschen Arbeitsmarkt [Germany’s Labour Market at a Turning Point]," Wirtschaftsdienst, Springer;ZBW - Leibniz Information Centre for Economics, vol. 102(9), pages 665-668, September.
    2. Matthias Collischon & Anna Herget & Regina T. Riphahn, 2024. "Minijobs as stepping stones to regular employment: overall trends and the role of Midijob reforms," Journal for Labour Market Research, Springer;Institute for Employment Research/ Institut für Arbeitsmarkt- und Berufsforschung (IAB), vol. 58(1), pages 1-18, December.
    3. Lembcke, Franziska & Nöh, Lukas & Schwarz, Milena, 2021. "Anreizwirkungen des deutschen Steuer- und Transfersystems auf das Erwerbsangebot von Zweitverdienenden," Working Papers 06/2021, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.
    4. Sauer, Stefan & Garnitz, Johanna & von Maltzan, Annette, 2022. "Fachkräftemangel aus Unternehmenssicht: Auswirkungen und Lösungsansätze. Jahresmonitor der Stiftung Familienunternehmen," Studien, Stiftung Familienunternehmen / Foundation for Family Businesses, number 265550.
    5. Steffen J. Roth, 2022. "Das Ehegattensplitting steht der Erwerbstätigkeit von Frauen nicht im Weg [The Taxation of Couples in Germany Does Not Prevent Women from Working]," Wirtschaftsdienst, Springer;ZBW - Leibniz Information Centre for Economics, vol. 102(12), pages 965-970, December.
    6. Braband, Carsten & Consiglio, Valentina Sara & Grabka, Markus M. & Hainbach, Natascha & Königs, Sebastian, 2022. "Disparities in Labour Market and Income Trends during the First Year of the COVID-19 Crisis – Evidence from Germany," IZA Discussion Papers 15475, Institute of Labor Economics (IZA).

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