A09
Family Policies and Redistribution: Impacts, Perceptions and Optimal Design
Discussion Papers

Discussion Paper No. 345
November 1, 2022

Redistribution and Unemployment Insurance

Authors:
Ferey, Antoine (LMU Munich)
Abstract:
This paper analyzes the interactions between redistribution and unemployment insurance policies and their implications for the optimal design of tax-benefit systems. In a setting where individuals with different earnings abilities are exposed to unemployment risk on the labor market, I characterize the optimal income tax schedule and the optimal unemployment benefit schedule in terms of empirically estimable sufficient statistics. I provide a Pareto-efficiency condition for tax-benefit systems that implies a tight link between optimal redistribution and optimal unemployment insurance: the steeper the profile of income taxes is, the flatter the profile of unemployment benefits should be, and vice versa. Optimal replacement rates are therefore monotonically decreasing with earnings, from 1 at the bottom of the earnings distribution to 0 at the top, and redistribution through unemployment benefits is efficient. Empirical applications show that these interactions between redistribution and unemployment insurance have important quantitative implications.
Download:
Open PDF file

Discussion Paper No. 321
March 2, 2022

Inequality and Income Dynamics in Germany

Authors:
Drechsel-Grau, Moritz (University of Zurich)
Peichl, Andreas (ifo Institute and LMU Munich)
Schmieder, Johannes (Boston University)
Schmid, Kai D. (Heilbronn University of Applied Sciences)
Walz, Hannes (FAU and IAB)
Wolter, Stefanie (IAB)
Abstract:
We provide a comprehensive analysis of income inequality and income dynamics for Germany over the last two decades. Combining personal income tax and social security data allows us – for the first time – to offer a complete picture of the distribution of annual earnings in Germany. We find that cross-sectional inequality rose until 2009 for men and women. After the Great Recession inequality continued to rise at a slower rate for men and fell slightly for women due to compression at the lower tail. We further document substantial gender differences in average earnings and inequality over the life-cycle. While for men earnings rise and inequality falls as they grow older, many women reduce working hours when starting a family such that average earnings fall and inequality increases. Men’s earnings changes are on average smaller than women’s but are substantially more affected by the business cycle. During the Great Recession, men’s earnings losses become magnified and gains are attenuated. Apart from recession years, earnings changes are significantly right-skewed reflecting the good overall state of the German labor market and increasing labor supply. In the second part of the paper, we study the distribution of total income including incomes of self-employed, business owners, and landlords. We find that total inequality increased significantly more than earnings inequality. Regarding income dynamics, entrepreneurs’ income changes are more dispersed, less skewed, less leptokurtic and less dependent on average past income than workers’ income changes. Finally, we find that top income earners have become less likely to fall out of the top 1 and 0.1 percent.
Keywords:
inequality; income dynamics; mobility; non-labor income
JEL-Classification:
D31; E24; E31; J31
Download:
Open PDF file

Discussion Paper No. 299
November 15, 2021

Expectation Management of Policy Leaders: Evidence from COVID-19

Authors:
Haan, Peter (FU Berlin and DIW Berlin)
Peichl, Andreas (LMU Munich and ifo Institute)
Schrenker, Annekatrin (FU Berlin and DIW Berlin)
Weizsäcker, Georg (HU Berlin)
Winter, Joachim (LMU Munich)
Abstract:
This paper studies how the communication of political leaders affects the expectation formation of the public. Specifically, we examine the expectation management of the German government regarding COVID-19-related regulatory measures during the early phase of the pandemic. We elicit beliefs about the duration of these restrictions via a high-frequency survey of individuals, accompanied by an additional survey of firms. To quantify the success of policy communication, we use a regression discontinuity design and study how beliefs about the duration of the regulatory measures changed in response to three nationally televised press conferences by Chancellor Angela Merkel and the Prime Ministers of the German federal states. We find that the announcements of Angela Merkel and her colleagues significantly prolonged the expected duration of restrictions, with effects being strongest for individuals with higher ex-ante optimism.
Keywords:
expectations; belief updating; covid-19; shutdown
JEL-Classification:
D12; D84; H12
Download:
Open PDF file

Discussion Paper No. 298
November 15, 2021

Social Mobility in Germany

Authors:
Dodin, Majed (University of Mannheim)
Findeisen, Sebastian (University of Konstanz)
Henkel, Lukas (European Central Bank)
Sachs, Dominik (LMU Munich)
Schüle, Paul (LMU Munich and ifo Institute)
Abstract:
We characterize intergenerational mobility in Germany using census data on educational attainment and parental income for 526,000 children. Our measure of educational attainment is the A-Level degree, a requirement for access to university. A 10 percentile increase in the parental income rank is associated with a 5.2 percentage point increase in the A-Level share. This parental income gradient has not changed for the birth cohorts of 1980-1996, despite a large-scale policy of expanding upper secondary education. At the regional level, there exists substantial variation in mobility estimates. Place effects, rather than sorting of households, account for most of these differences.
Keywords:
intergenerational mobility; educational attainment; local labor markets
JEL-Classification:
I24; J62; R23
Download:
Open PDF file

Discussion Paper No. 281
February 26, 2021

The Indirect Fiscal Benefits of Low-Skilled Immigration

Authors:
Colas, Mark (University of Oregon) Sachs, Dominik (LMU Munich)
Abstract:

Low-skilled immigrants indirectly affect public finances through their effect on native wages & labor supply. We operationalize this indirect fiscal effect in various models of immigration and the labor market. We derive closed-form expressions for this effect in terms of estimable statistics. Empirical quantifications for the U.S. reveal that the indirect fiscal benefit of one low-skilled immigrant lies between $770 and $2,100 annually. The indirect fiscal benefit may outweigh the negative direct fiscal effect that has previously been documented. This challenges the perception of low-skilled immigration as a fiscal burden.

Keywords:
immigration; fiscal impact; general equilibrium
JEL-Classification:
H20; J31; J62; J68
Download:
Open PDF file

Discussion Paper No. 239
April 29, 2020

Starke Erwartungsreaktionen auf Angela Merkels Covid-Erklärungen

Author:

Haan, Peter (DIW Berlin)
Peichl, Andreas (LMU Munich & ifo Institute)
Schrenker, Annekatrin (DIW Berlin)
Weizsäcker, Georg (HU Berlin)
Winter, Joachim (LMU Munich)

Abstract:

Wir führen hochfrequente Befragungen der in Deutschland lebenden Personen durch und erheben die Erwartungen zur Dauer der Covid-bedingten Beschränkungen des öffentlichen Lebens. In einer ersten Analyse der Daten finden wir Hinweise, dass zwei in den Erhebungszeitraum fallenden öffentlichen Auftritte von Bundeskanzlerin Angela Merkel die Erwartungen stark beeinflussen. Insbesondere messen wir nach Merkels Pressekonferenz vom 15.4.2020 eine deutlich pessimistische Bewegung der Erwartungen und die beabsichtigten Konsumausgaben der Haushalte sinken zeitgleich. Die Ergebnisse legen nahe, dass die deutsche Politik über die Möglichkeit eines sehr wirksamen Erwartungsmanagements verfügt.

Keywords:

ökonomische Erwartungen; Covid-Shutdown

JEL-Classification:

D12; D84

Download:

Open PDF file

Discussion Paper No. 236
April 15, 2020

Politically Feasible Reforms of Non-Linear Tax Systems

Author:

Bierbrauer, Felix J. (University of Cologne)
Boyer, Pierre C. (École Polytechnique)
Peichl, Andreas (LMU Munich & ifo Institute)

Abstract:

We study reforms of non-linear income tax systems from a political economy perspective. We present a median voter theorem for monotonic tax reforms, reforms so that the change in the tax burden is a monotonic function of income. We also provide an empirical analysis of tax reforms, with a focus on the US. We show that past reforms have, by and large, been monotonic. We also show that support by the median voter was aligned with majority support in the population. Finally, we develop sufficient statistics that enable to test whether a given tax system admits a politically feasible reform.

Keywords:

non-linear income taxation; tax reforms; political economy; optimal taxation

JEL-Classification:

C72; D72; D82; H21

Download:

Open PDF file

Discussion Paper No. 232
March 9, 2020

Measuring Unfair Inequality: Reconciling Equality of Opportunity and Freedom from Poverty

Author:

Hufe, Paul (LMU Munich & ifo Institute)
Kanbur, Ravi (Cornell University)
Peichl, Andreas (LMU Munich & ifo Institute)

Abstract:

Empirical evidence on distributional preferences shows that people do not judge inequality as problematic per se but that they take the underlying sources of income differences into account. In contrast to this evidence, current measures of inequality do not adequately reflect these normative preferences. In this paper we address this shortcoming by developing a new measure of unfair inequality that reconciles two widely-held fairness principles: equality of opportunity and freedom from poverty. We provide two empirical applications of our measure. First, we analyze the development of inequality in the US from 1969 to 2014 from a normative perspective. Second, we conduct a corresponding international comparison between the US and 31 European countries in 2010. Our results document increasing unfairness in the US over time. This trend is driven by a strong decrease in social mobility that puts the “land of opportunity” among the most unfair countries in 2010.

Keywords:

inequality; equality of opportunity; poverty; fairness; measurement

JEL-Classification:

D31; D63; I32

Download:

Open PDF file