Income inequality in Germany has been continuously increasing during the past 20 years. In general, this is understood as an increase in inequality of wages due to changes in bargaining power of employees. However, the role of changing household structure is widely neglected. Societal trends...

Whether observed differences in redistributive policies across countries are the result of differences in social preferences or efficiency constraints is an important question that paves the debate about the optimality of welfare regimes. To shed new light on this question, we estimate labor...

There is clear evidence that fairness plays a role in redistribution. Individuals want to compensate others for their misfortune, while they allow them to enjoy the fruits of their effort. This paper introduces fairness in a tax-benefit scheme that is based on several characteristics in order to...

This paper provides evidence of efficient taxation of groups with heterogeneous levels of ‘tax morale'. We set up an optimal income tax model where high tax morale implies a high subjective cost of evading taxes. The model predicts that ‘nice guys finish last': groups with higher tax morale...

Previous estimates of inequality of opportunity (IOp) are lower bounds because of the unobservability of the full set of endowed characteristics beyond the sphere of individual responsibility. Knowing the true size of unfair IOp, however, is important for the acceptance of (some) inequality and...

We analyze different options for the design of a common unemployment insurance system for the euro area (EA). We assess their effectiveness to act as an insurance device in the presence of asymmetric macroeconomic shocks. Running counterfactual simulations based on micro data for the period...

We present a conceptual framework for the analysis of politically feasible tax reforms. First, we prove a median voter theorem for monotonic reforms of non-linear tax systems. This yields a characterization of reforms that are preferred by a majority of individuals over the status quo and hence...

It is widely believed that globalization affects the extent of employment and wage responses to economic shocks. To provide evidence for this, we analyze the effect of firms' exporting behavior on the elasticity of labor demand. Using rich, German administrative linked employer-employee panel...

Several recent studies show that the elasticity of taxable income (ETI) is not a sufficient statistic for the welfare costs of taxation due to factors such as taxbase shifting. This paper provides an additional argument demonstrating the non-sufficiency of the ETI, namely tax deductions....

How can retirement savings be increased? We explore a unique policy change in the context of the German pension system to study this question. As of 2005 (with a phase-in period between 2002-04), the German pension administration started to send out annual letters providing detailed and...