To collect income taxes, almost all countries require employers to withhold monthly tax prepayments which are then fully credited against the final income tax liabilities of their employees. Despite being a fundamental component of income taxation systems worldwide, the impact of these withholding taxes on labor supply is poorly understood. We investigate their importance in the context of married couples in Germany where the withholding tax liability can be redistributed between spouses. We exploit a reform that reduced the withholding tax for some married women more than for others, while inducing no differences in income taxes. Using administrative data for the full population of German taxpayers, we estimate an elasticity of labor income with respect to the withholding tax eight years after the reform of 0.14. Additional evidence from a self-conducted survey suggests imperfect understanding of the tax system and limited pooling of resources within the household as the main mechanisms. As the majority of couples shift parts of the withholding tax liability from the husband to the wife, our results suggest that the increased withholding tax liability of married women contributes to their low labor supply. This highlights the need for governments to be aware of the distortion of labor supply incentives when the design of withholding taxes does not match actual income tax incentives.

Media: FAZ

The new German minimum wage applies a specific exemption clause for internships, where internships that last up to three months are exempted while internships that exceed three months are due to the minimum wage. Negative minimum wage effects on internships are heavily debated as internships are mostly non-productive. Difference-in-difference analyses that exploit establishment and regional variation in the bite of the minimum wage do not show a reduction in the number of internships. In addition, we pursue an innovative approach by using Google search data to analyse how the search intensity for internships changed in course of the minimum wage introduction. Difference-in-difference comparisons with other countries in Europe do not reveal an effect on the search for internship positions in general, but we observe a significant reduction in Google search for ‘generation internship’. This suggests that the underlying societal phenomenon of a generation entering internships without a perspective for regular jobs has lost in relevance.

Low take-up of parental leave by fathers is a major factor in determining the unequal career costs of parenthood for men and women. Can the design of public policies effectively increase fathers' participation in parental leave? This paper causally assesses how financial incentives shape household division of parental leave. We leverage exogenous variation in parental leave (PL) benefits induced by a sharp kink in the schedule of benefit amounts relative to individual pre-birth net earnings, combined with exhaustive German administrative data on the division of parental leave for all childbirths from 2014 to 2018. Using a double Regression Kink Design —an extension we make of the RKD methodology by Card et al. (2015)—we analyze how both parents respond to changes in the generosity of their own and their partner's benefits. Our key finding is that a reduction in the mother's benefit leads to a substitution in parental inputs, decreasing her leave while increasing the father's take-up, especially along the intensive margin, without altering the total duration of parental leave taken by the household. Cross-elasticities are higher when fathers have higher replacement rates than their partners. Our findings also reveal strong asymmetries, since mothers are significantly less responsive to changes in the father’s benefit.

Diversity goals - whether explicit or implicit - are usually defined on a large scale, such as the student body of a university or the workforce of a company. However, the implementation of these goals often occurs at a smaller scale, as hiring and admission decisions are made by different decision-makers (e.g., HR managers, admission officers) at various points in time (e.g., recruitment rounds). To study the consequences of small-scale decision-making, we leverage register data from the selection process of a large study grant program where candidates are quasi-randomly assigned to evaluators. Our findings provide evidence that evaluators aim at balancing their small number of positive assessments with respect to gender, migration background and socio-economic status. Consequently, individual admission chances decrease with the number of other candidates sharing the same attributes in the pool. Our findings highlight that small-scale implementation of diversity goals results in inefficient hiring outcomes.

The design of the French income tax offer an alternative approach to estimating tax elasticities in an observational setting. Relative to natural experimental designs studying the effects of reforms concerning certain income deciles, the proposed approach allows for measurements along the income distribution. At the same time, it has the advantage of offering a more granular analysis of heterogeneities by income rank and split within the household.

In Germany, the size of unemployment benefits depends on net income after substracting withholding taxes. This means that conditional on the same gross income, individuals receive substantially different levels of unemployment benefit depending on their withholding tax class. We document that individuals are unaware of the link between withholding tax class and the unemployment benefit level. This allows us to study the effects of a tax reform that, conditional on income, increased the generosity of unemployment benefits specifically for one group of women by EUR 50-180 per month. In contrast to previous studies, this setting allows us to study the effects of an increase in UI benefits on the whole income distribution.

We compare self-reported survey wages from the German Socio-Economic Panel (SOEP) with administrative wages from the social security records (IEB) for the same individual via a novel and unique data linkage (SOEP - ADIAB). We describe a modest but economically significant extent of reporting bias, with SOEP respondents understating administrative wages by about 7.3 percent. Individual, household-, and especially firm characteristics vary systematically with the reporting bias. Replicating common empirical exercises using wages as dependent and independent variable, we find that the choice of data matters, in particular, when estimating the relationship between wages and subjective outcome variables which are directly related to income (satisfaction measures) or between wages and variables that are more strongly correlated with the reporting bias (e.g. gender). In these cases, relying on survey wages can significantly overstate the correlation. Our findings underscore the critical importance of exercising caution when analyzing survey-based measures of individual income in empirical research. Depending on the research question at hand, it might be worthwhile to complement survey data by administrative measures.