Horizontal Inequities in the German Tax-Benefit-System: The Case of Two Wage-Earner Employee Households

The question of how horizontal equity between families in the tax-benefit-system is affected by the within-household distribution of earnings has not been systematically analyzed so far. Using an arithmetic model accounting for all relevant parts of the German tax-benefit-system we explored this aspect in detail. From our calculations it became evident that the combined burden of taxes, social security contributions, and transfers was significantly affected by the distribution of earnings between spouses and that the effect differs with respect to total household income. Overall, the German tax-benefit-system favors an unequal income distribution within the household. Applying the model on empirical data taken from the most recent German Income and Expenditure Survey, we were able to quant ify these effects. According to our results, total disposable income of the households analyzed would increase by about 5.5 billion per year if all wage income within households would be allocated to a single-earner.