The impact of withholding taxes on labor supply has so far been neglected in the analysis of the optimal design of income taxation systems. We investigate their importance in the context of married couples in Germany. In a first step, we document with the help of a survey that less than 20% of the interviewed married individuals understand that withholding taxes are tax prepayments which are fully credited against the final income tax and, therefore, do not determine the income tax burden. Making use of a reform that decreased the withholding tax burden for some married women more than for others, while inducing no differences in income taxes, allows us to then estimate the elasticity of labor income with respect to the withholding tax. In line with our survey findings, we show that women adjust their labor supply following a change in withholding taxes. Importantly, the German institutional setting allows couples to partially redistribute the withholding tax burden from one partner to the other, and the majority shifts parts of the withholding tax burden from the husband to the wife. Our results suggest that the increased withholding tax burden of married women in Germany contributes to their low labor supply. The finding also highlights that governments should be aware that overwithholding results in an overestimation of the actual income tax and thus distorts labor supply 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.

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.

We investigate how economic incentives shape households' decisions to share parental leave among the partners. Specifically, we leverage exogenous changes in parental leave benefits for each partner induced by a sharp kink in the schedule of PL benefits relative to his/her pre-birth net earnings in Germany. We extend the RKD method developed in Card et al. (Econometrica, 2015) and adopt what we name a double-RKD to estimate, for each partner, both the own elasticity and the cross-elasticity relative to the partners' benefit. With highly precise estimates, we can reject that the cross-elasticities are null, indicating that households perceive parental inputs as substitutes. We derive optimal parental leave benefits taking into account cross-elasticities.

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.