It is argued that the German system of supporting low wage income earners by government transfers gives incentives for employers and employees to contract low wages and then to exploit the government. The paper analyses if such incentives do exist. It turns out that this is the case under...

The structure of income taxation in Germany implies that the marginal and the average tax rates will rise in the course of the coming years—even if the increase of nominal incomes is modest. The elasticity of the wage income tax revenues with respect to gross wages amounts to about 1.9,...