Public Sector Economics, Vol. 41 No. 1, 2017.
Original scientific paper
https://doi.org/10.3326/pse.41.1.8
Demographic change and income tax revenue in Germany: a microsimulation approach
Martin Beznoska
orcid.org/0000-0002-9966-221X
; Public Finance Research Unit, Cologne Institute for Economic Research (IW), Köln, Germany
Tobias Hentze
; Public Finance Research Unit, Cologne Institute for Economic Research (IW), Köln, Germany
Abstract
As a result of high net migration, both Germany’s overall population and its workforce potential are currently growing. However, within a few years this demographic trend will be reversed, leading to a decline in population as a whole and especially in the number of those gainfully employed. In this paper, we use a population projection to apply a static ageing approach to German micro data. Then, we simulate income tax revenue with a microsimulation model for the future population. In 20 years’ time the annual price-adjusted income tax loss is estimated to be equal to € 18 billion or almost 7 per cent. This fall in income tax revenue resulting from a shrinking and ageing society will place a huge strain on public finances in Germany, an effect further enhanced by the shift of the tax burden from pension contributions to pension benefits.
Keywords
public finance; tax revenue; demographic change; microsimulation
Hrčak ID:
178760
URI
Publication date:
15.3.2017.
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