Shifting the tax burden away from labour towards inheritances and gifts: Simulation results for Germany

Thiemann, Andreas et al. Working Paper Shifting the tax burden away from labour towards inheritances and gifts: Simulation results for Germany JRC Working Papers on Taxation and Structural Reforms, No. 16/2021 Provided in Cooperation with: Joint Research Centre (JRC), European Commission Suggested Citation: Thiemann, Andreas et al. (2021) : Shifting the tax burden away from labour towards inheritances and gifts: Simulation results for Germany, JRC Working Papers on Taxation and Structural Reforms, No. 16/2021, European Commission, Joint Research Centre (JRC), Seville This Version is available at: https://hdl.handle.net/10419/252332 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ Shifting the Tax Burden away from Labour towards Inheritances and Gifts – Simulation results for Germany JRC Working Papers on Taxation and Structural Reforms No 16/2021 Thiemann, A., Ognyanova, D., Narazani, E., Palvolgyi, B., Kalyva, A. and Leodolter, A. This publication is a Technical report by the Joint Research Centre (JRC), the European Commission’s science and knowledge service. It aims to provide evidence-based scientific support to the European policymaking process. The scientific output expressed does not imply a policy position of the European Commission. Neither the European Commission nor any person acting on behalf of the Commission is responsible for the use that might be made of this publication. For information on the methodology and quality underlying the data used in this publication for which the source is neither Eurostat nor other Commission services, users should contact the referenced source. The designations employed and the presentation of material on the maps do not imply the expression of any opinion whatsoever on the part of the European Union concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. Contact information Name: Andreas Thiemann Email: andreas[email protected]pa.eu EU Science Hub https://ec.europa.eu/jrc JRC127424 Seville: European Commission, 2021 © European Union, 2021 The reuse policy of the European Commission is implemented by the Commission Decision 2011/833/EU of 12 December 2011 on the reuse of Commission documents (OJ L 330, 14.12.2011, p. 39). Except otherwise noted, the reuse of this document is authorised under the Creative Commons Attribution 4.0 International (CC BY 4.0) licence (https://creativecommons.org/licenses/by/4.0/). This means that reuse is allowed provided appropriate credit is given and any changes are indicated. For any use or reproduction of photos or other material that is not owned by the EU, permission must be sought directly from the copyright holders. All content © European Union, 2021. How to cite this report: Thiemann, Ognyanova, Narazani, Palvolgyi, Kalyva and Leodolter (2021), Shifting the Tax Burden away from Labour towards Inheritances and Gifts, JRC Working Papers on Taxation and Structural Reforms No 16/2021 European Commission, Seville, 2021, JRC127424. i Contents Executive summary .......................................................................................................................................................................................................................................... 2 Acknowledgements .......................................................................................................................................................................................................................................... 3 Abstract ....................................................................................................................................................................................................................................................................... 4 1 Introduction..................................................................................................................................................................................................................................................... 5 2 The potential for a tax shift in Germany ............................................................................................................................................................................ 6 3 Exemptions for business assets in Germany ................................................................................................................................................................. 8 4 Simulations of a tax shift from labour to inheritances and gifts ............................................................................................................ 11 4.1 Methodological approach for simulating inheritance and gift tax reforms .............................................................................................. 11 4.1.1 Simulation of inheritance and gift tax reforms ........................................................................................................................................ 11 4.1.2 Simulation of the labour taxation scenarios using EUROMOD ....................................................................................................... 12 4.1.3 Simulation of the labour supply responses using EUROLAB ............................................................................................................ 13 4.2 Description of the simulations ............................................................................................................................................................................................... 13 4.3 Simulation results .......................................................................................................................................................................................................................... 15 4.3.1 Inheritance and gift taxation ................................................................................................................................................................................ 15 4.3.2 Labour income taxation ........................................................................................................................................................................................... 16 4.3.3 Labour supply effects................................................................................................................................................................................................ 17 5 Conclusion ..................................................................................................................................................................................................................................................... 18 References ............................................................................................................................................................................................................................................................. 19 List of figures ..................................................................................................................................................................................................................................................... 22 List of tables ........................................................................................................................................................................................................................................................ 23 Annexes .................................................................................................................................................................................................................................................................... 24 Annex 1. Overview of inheritances and gift taxes in the EU ........................................................................................................................ 24 Annex 2. Simulation of inheritances and gift tax scenarios ......................................................................................................................... 25 Annex 3. Labour supply effects ................................................................................................................................................................................................ 27 2 Executive summary The current COVID-19 pandemic is having a profound impact on the overall economy, tax revenues, employment and material deprivation of some vulnerable groups. This situation calls for bold measures to address the social and economic impact of the crisis and restore economic growth, for example, shifting taxes away from labour towards taxes which are less detrimental to employment and growth. This paper looks at a promising revenue source, namely taxes on inheritance and gifts. Recent reforms have not aimed at higher revenues or broadening substantially the tax base although Germany’s tax revenues from inheritances and gifts are rather limited in international comparison. At the same time, given the large degree of wealth inequality in Germany and the profound social and economic effects of the COVID-19 crisis, the taxation of wealth and wealth transfers across generations is increasingly being discussed as a tool for redistribution and an important revenue source. Germany’s inheritance and gift tax grants large tax exemptions when family businesses are transferred to the next generation, which leads to very low effective tax rates and makes the system complex, inefficient and regressive. These generous exemptions result in a very low effective inheritance tax burden for large and very large capital transfers. Indeed there is a debate on the far-reaching character of such exemptions and even on their constitutionality – which clearly goes beyond the remit of this paper. In analytical terms it is important to note the dearth of evidence (or theory) supporting such exemptions of business assets from inheritance and gift tax, especially since they can fuel the delegitimation of inheritance tax progression, of wealth redistribution, of meritocratic ideas and of the principle of equal opportunities. They create economic distortions and incentives for family-owned firm continuation and lock-in effects on investment, employment, management and governance. In view of that, this paper presents three hypothetical scenarios of tax shifting from labour towards inheritances and gifts in Germany. Each of them consists of two separate parts: a) taxation of inheritances and gifts and b) labour income taxation. In the first part, we follow Bach and Thiemann (2016) to simulate different inheritance and gift tax scenarios that have in common the abolition of all tax exemptions but differ on the degree of progressivity of inheritance taxation. In the labour income taxation part, using EUROMOD, the additional inheritance and gift tax revenue generated by the inheritance and gift tax reform are allocated to reducing the tax burden on labour by reforming social security contributions (midi-zone), solidarity surcharge, and the so-called ‘middle-class bulge’. The findings indicate that abolishing all inheritance tax exemptions would lead up to about EUR 9 billion (EUR 12.6 billion under the optimistic scenario) additional revenues, in the absence of behavioural responses. Lowering the inheritance tax rate to 15% and 10% could generate about EUR 4 billion (EUR 6.5 billion under optimistic scenario) and EUR 550 million (EUR 2.3 billion) respectively. The additional revenues from the reform of the inheritance and gift tax would allow a lowering of the tax wedge on labour that would lead to higher net income across all deciles. The strongest redistributive effect comes from the scenario where the solidarity surcharge is abolished and social security contributions are lowered for lowerand middle-income people. Under the scenario where the personal income tax is reformed, all deciles of the income distribution benefit from flattening the ‘middle class bulge’, in particular households located between the 4th and the 9th decile. The behavioural effects of the reforms on labour supply are relatively small and mainly concentrated in the intensive margin. Individuals in low-income deciles increase their labour supply in all scenarios due to lower marginal effective tax rates and their high labour supply elasticities. These findings indicate that well-designed reforms of tax shifting away from labour towards wealth-related taxes, such as inheritance and gift taxes, could play an important role in improving equality of opportunity and supporting inclusive growth in Germany. 3 Acknowledgements The paper benefited from comments by Manfred Bergmann, Philippe Demougin, Magdalena Morgese Borys, Dino Pinelli, Savina Princen, Kai-Young Weissschaedel and Stefan Zeugner. The information and views expressed in this paper do not necessarily reflect an official position of the European Commission or of the European Union. All remaining errors are ours. Authors Andreas Thiemann*, Diana Ognyanova**, Edlira Narazani*, Balazs Palvolgyi**, Athena Kalyva*** and Alexander Leodolter** * European Commission, Joint Research Centre ** European Commission, DG for Economic and Financial Affairs *** Greek Ministry of Finance 4 Abstract Germany’s tax system places a relatively strong emphasis on direct taxes, particularly on labour. At the same time, revenues from the inheritance and gift tax are relatively low. This points towards a large-scale transfer of wealth from one generation to the next that is largely untaxed and thereby maintaining the high degree of wealth inequality observed in Germany. This is due mainly to the wide-ranging tax exemptions for business assets, which make the system complex, inefficient and regressive. This paper presents three hypothetical budget-neutral scenarios of broadening the inheritance and gift tax base while reducing the tax burden on labour income. Keeping the current progressive rates but abolishing tax exemptions would lead to about EUR 9-12 billion additional annual inheritance and gift tax revenue. Replacing the current tax regime by a flat rate of 10% or 15% could yield about EUR 0.5-2.3 billion or EUR 4-6.5 billion. Using EUROMOD, the microsimulation model of the EU, we show that these additional revenues could be used to reduce the tax burden on labour, which would improve income equality. Furthermore, estimations of labour supply responses to these reforms, based on the EUROLAB labour supply model, indicate that lowering the tax burden on labour may also lead to a slight increase in labour supply in particular for lowincome earners. JEL Classification : D31, H2, J2. Keywords: tax shift, inheritance and gift tax, tax wedge on labour, wealth inequality. 5 1 Introduction Shifting the tax burden away from labour towards wealth is becoming increasingly important for supporting inclusive growth and equality of opportunity. It can also help improve labour market and macroeconomic outcomes. This is becoming even more important in face of the current COVID-19 pandemic which has a profound impact on the economy and tax revenues as well as on employment situation and income vulnerability of affected households. Therefore, bold measures are needed to address the social and economic impact of the crisis and restore economic growth, for example by shifting taxation away from labour towards tax bases which are less detrimental to employment and growth. This paper looks at a promising revenue source, namely taxes on inheritance and gifts. Recent reforms have not aimed at higher revenues or broadening substantially the tax base although Germany’s tax revenues from inheritances and gifts are rather limited in international comparison. At the same time, given the large degree of wealth inequality in Germany and the profound social and economic effects of the COVID-19 crisis, the taxation of wealth and wealth transfers across generations is increasingly being discussed as a tool for redistribution and an important revenue source. The idea of raising revenues from wealth related taxes to compensate for revenues lost by the lowering of labour income taxes is increasingly gaining attention and many economists and institutions suggest budget-neutral labour income tax reductions to foster economic performance and combat inequality (Paetzold and Tiefenbacher, 2018; Stähler, 2019; IMF, 2014, OECD, 2021). However, while recommendable from an economic point of view, such a tax shift in Germany could face implementation obstacles related to the country’s federal system. ( 1 ) Of all wealth-related taxes, the inheritance tax is considered the least distortive and the one with the biggest potential to meet equity and efficiency goals (Brys, 2016; Bach, 2016). 2 Inheritance taxes are considered as relatively more efficient because of low elasticities of wealth accumulation to wealth transfer tax rates (Batchelder, 2016). Moreover, the fact that the date of inheritance cannot be planned should also decrease behavioural responses. Recent studies suggest that donors’ reactions to inheritance taxes are small in size or that they even increase their saving when faced with an inheritance tax (Erixson and Escobar, 2018; Goupille-Lebret and Infante, 2017), while recipients of inheritances increase their labour supply when faced with the tax (Elinder et al., 2011; Garbinti and Georges-Kot, 2017; Kindermann et al., 2018). Furthermore, possibilities for tax circumvention by changing location are limited, as the tax liability persists for a period of time, and even if the heir or donor moves abroad, a complete circumvention is difficult to achieve (OECD, 2018; Schratzenstaller, 2013). Germany’s inheritance and gift tax grants large tax exemptions when family businesses are transferred to the next generation, which leads to very low effective tax rates and makes the system complex, inefficient and regressive. These generous exemptions result in a very low effective inheritance tax burden for large and very large capital transfers (Bach and Thiemann, 2016; Kiziltepe and Scholz, 2016). Following a judgment by the German Constitutional Court in 2014 that such exemptions are too far reaching and unconstitutional, a reform took place in 2016, which changed the situation only marginally by reducing some privileges and introducing others (Dorn et al., 2017, Scholz and Truger, 2016). Due to the favourable tax treatment of business assets, the progressive rate of the inheritance and gift tax, ranging from 7% to 50% (see Table 1), in practice becomes regressive, as large inheritances go largely untaxed (Bach and Thiemann, 2016). In analytical terms it is important to note the dearth of evidence (or theory) supporting the far-reaching exemptions of business assets from Germany’s inheritance and gift tax. On the contrary, such tax expenditures can fuel delegitimation of inheritance tax progression, wealth redistribution, meritocratic ideas and equal opportunities. They create economic distortions and incentives for family-owned firm continuation and lock-in effects on investment, employment, management and governance. In view of that, this paper presents three hypothetical scenarios of tax shifts away from labour towards inheritances and gifts in Germany. Each of them consists of two separate parts: a) taxation of inheritances and gifts and b) labour income taxation. In the first part, we follow closely Bach and Thiemann (2016) to simulate the different inheritance and gift tax scenarios that have in common the abolition of all tax exemptions, such as those for business assets or those for owner-occupied real estate. Furthermore, while the first inheritance and gift tax scenario keeps the progressive tax scheme, the remaining two scenarios replace them with flat rates (10% and 15%). In the labour income taxation part, we use the additional inheritance and gift tax revenue generated by the inheritance and gift tax reform to ease the tax burden on labour by reforming social security contributions (midi-zone), solidarity surcharge, and the so-called ‘middle-class bulge’. The simulations show that by broadening the inheritance and gift tax base, the tax rates can be lowered significantly and the additional revenues generated could finance a reduction in labour taxes. We find that abolishing all exemptions would lead up to about EUR 9 billion (EUR 12.6 billion under the optimistic scenario) additional revenues, in the absence of behavioural ( 1 ) This is likely to be the case in Germany, where revenues from the inheritance and gift tax accrue to the Länder level, social-security contributions accrue to social security systems, the solidarity surcharge to the federal level, while the personal income tax is split between federal and regional levels. ( 2 ) Other wealth-related taxes such as recurrent taxes on immovable property could in general be considered a relatively efficient tax, given the immobility of the tax base. In addition, taking account of the relatively low rate of home ownership in Germany and its unequal distribution, recurrent property taxes may also contribute to a fairer distribution of the tax burden. However, in Germany the owner can include the taxes due in the utilities to be paid by the tenant. This makes the tenant the de facto entity on whom the tax is imposed, which counteracts the equalising effect of the tax. Also, the negative behavioural effects of wealth taxes have been estimated to be more pronounced than the ones of inheritance taxes (Brülhart et al. 2019). 6 responses. Lowering the tax rate to 15% could generate about EUR 4 billion (EUR 6.5 billion). Reducing the flat tax on inheritances and gift to 10% would yield about EUR 550 million (EUR 2.3 billion), in addition to the baseline. The additional revenues from the reform of the inheritance and gift tax would allow a lowering of the tax wedge on labour that would lead to higher net income across all deciles. The strongest redistributive effect comes from the scenario where for lowerand middleincome people the solidarity surcharge is abolished and social security contributions are lowered. Under the third scenario, where the personal income tax is reformed, all deciles of the income distribution benefit from flattening the ‘middle class bulge’, in particular households located between the 4th and the 9th decile. The behavioural effects of the reforms on labour supply are relatively small and mainly concentrated in the intensive margin. Individuals in low-income deciles increase their labour supply in all scenarios due to lower marginal effective tax rates and their high labour supply elasticities. The paper is organized as follows. Section 2 describes the tax design and the potential of a tax shift reform away from labour towards inheritances and gifts in Germany, while section 3 addresses the tax exemptions applied to the transfer of business assets. Section 4 describes the methodology of the tax shift simulations and discusses the results. The final section is a conclusion. 2 The potential for a tax shift in Germany Although the taxation of wealth transfers could contribute to more economic efficiency and equality of opportunity, inheritance taxes appear to be currently underused in the EU. Political reluctance to go against strong lobby interests and low popularity among citizens are often cited as reasons behind the limited use and even abolition of existing inheritance taxes. Sections 2 and 3 further elaborate on the reasons and the arguments behind the limited tax revenues from inheritance and gift taxes in Germany. Interestingly, providing information on the design of inheritance and gift taxes, including on the actual incidence of the tax, and on the wealth distribution can significantly increase public support for such taxes (Grégoire-Marchand 2018; Bastani and Waldenström 2019). Specific design issues of inheritance and gift taxes ( 3 ) (e.g. tax rates, tax thresholds, tax treatment of business assets and of immovable property etc.) affect their budgetary potential and can create avenues for tax avoidance and evasion. In the EU, 18 Member States tax inheritances and gifts. ( 4 )Revenues from inheritance and gift taxes across the EU Member States only account for a very small share of total tax revenues and only 0.2% of GDP. Taxing private wealth in the EU member states that joined the EU since 2004 is a rather recent phenomenon, given the long-time absence of private wealth in the former communist countries. Moreover, revenues from taxes on inheritances and gifts constitute only a fraction of total wealth taxes, as taxation of immovable property, whether recurrent or collected upon market transfer, constitutes the lion’s share of wealth taxes in most Member States (Figure 1). While immovable property taxes as a share of GDP have risen slightly over the last two decades, the share of inheritance taxes has remained stable. This may be explained by the fact that several countries have abolished their inheritance tax (e.g. Sweden), despite the increasing private wealth/income ratio and wealth concentration over the same period. ( 3 ) The provisions related to inheritance and gift laws are very complex in most countries, due to the use of tax rate schedules that can be both progressive in inheritance and gift size and different depending on the relationship of donor and recipient, but also because of varying exemptions, thresholds and conditions for specific assets (Annex 1). ( 4 ) See Annex 1 for an overview. Princen et al. (2020) provides more details on the national arrangements. 13 4.1.3 Simulation of the labour supply responses using EUROLAB EUROMOD is a static microsimulation model and, as such, does not consider the possible effects of the hypothetical income tax reforms on individual labour supply. However, often these reforms may impact work behaviour of the families and individuals concerned. Therefore, to account for behavioural labour supply effects due to the hypothetical income tax reforms, we use the one-dimensional version of EUROLAB, the labour supply model of the European Union (see Narazani et al., 2021). The one-dimensional version of EUROLAB is built on a discrete choice model of labour supply and uses EUROMOD to construct budget constraints at each hour’s alternative of the choice set. Like other behavioural microsimulation models, EUROLAB estimates a set of structural parameters of the utility function and applies them to predict labour supply behaviour. For the purpose of these simulations, a version of EUROLAB is run which, in the case of a single decision-making unit, is based on a choice set consisting in some ranges of positive working hours and zero working hours. In addition, observed wages are used for the working sample while for the non-working sample a wage rate is predicted following Heckman prediction method. The labour supply effects are computed on a sample of individuals considered as decision-making units within households. The decision making unit involves couples (household head and partner) and singles (household head), aged 20 to 60. Selfemployed, students, military and disabled are excluded. 4.2 Description of the simulations This section presents three different scenarios of tax shifts away from labour towards inheritances and gifts in Germany. Each of them consists of two separate parts: a) taxation of inheritances and gifts and b) labour income taxation. In the first part, we simulate the budgetary and distributional effects of each inheritance and gift tax reform scenario. Common to all scenarios is the abolition of all tax exemptions, such as those for business assets or those for owner-occupied real estate ( 10 ). While the first inheritance and gift tax scenario keeps the progressive tax scheme, the remaining two scenarios replace them with flat rates (10% and 15%). In the labour income taxation part, we use the additional inheritance and gift tax revenue generated by the inheritance and gift tax reform to ease the tax burden on labour by reforming social security contributions (midi-zone), solidarity surcharge, and the so-called ‘middle-class bulge’. Since the joint budgetary effect of the two parts (a & b) is nearly zero, we call them a budget neutral tax shift. In the following, we describe the baseline as well as the different scenarios one by one (Table 2). All tax shift simulations refer to the tax and benefit system in place (end of June 2018). comprehensive income concept to heirs, instead of our approach, wealth transfers and imposed taxes, indeed, affect their disposable income in the time period being considered. ( 10 ) Within the current inheritance and gift tax system, owner-occupied real estate is fully exempt from the tax, if it is inherited or donated to a partner regardless of the size of the property. If inherited or donated to a child it is exempt from the tax only if the property does not exceed 200 m2 and if the heir or recipient lives in the property for at least 10 years. 14 Table 2. Tax shift scenarios for Germany (1) Under the optimistic estimate of the additional tax revenue from the inheritance and gift tax, the tax burden on labour taxation can be reduced more strongly than under the conservative estimate of additional inheritance and gift tax revenue. The corresponding parameters in brackets refer to the optimistic estimate, while the normal parameters refer to the conservative estimate. Source: Own elaboration. Baseline scenario In the inheritance and gift tax scheme as of 2018 (baseline), wealth transfers are taxed progressively, by value of transfer and relational distance between legator (donor) and heir (beneficiary) (see Table 2). Furthermore, certain types of wealth, e.g. business assets, are (partially) tax exempt, which has important implications, particularly for sizable transfers. ( 11 ) The rules of labour income taxation refer to those in place at the end of June 2018. Accordingly, any subsequent reform of the German tax and benefit system is not reflected in the baseline scenario. Before discussing the three tax shift scenarios in detail, we describe the common features in all inheritance and gift tax scenarios. We broaden the tax base by replacing all specific exemptions, e.g. those on transfers of businesses, by a basic individual allowance of EUR 400 000 which is applied to each wealth transfer. The choice of the allowance threshold mimics the taxation of inheritances received by children and is in line with Bach and Thiemann (2016). In doing so, we remove any preferential tax treatment granted to certain groups or asset types. Furthermore, for each inheritance and gift tax scenario, we distinguish between a conservative and an optimistic tax revenue estimate, reflecting different modelling approaches. In short, the optimistic scenario assumes that private net wealth has increased by 17% between 2014 (year of data collection) and 2018, which corresponds to the increase in aggregate private net wealth according to national accounts (Statistisches Bundesamt, 2018, p.13). Scenario 1 The first inheritance and gift tax scenario imposes the progressive tax rates of 2018 - according to tax class I (see Table 2) - to each wealth transfer, after deducting an individual allowance of EUR 400 000, irrespective of relational distance between donor and heir. As a result, the tax burden increases for most heirs/gift recipients compared with the baseline, especially for sizable transfers. The estimates do not take into account possible behavioural responses that might lower tax revenues from inheritance and gift taxes. On the labour taxation side, we use the additional tax revenue from the inheritance and gift tax scenario to exempt a larger share of taxpayers from the solidarity surcharge and to extend the so-called ‘midi-zone’. The first component, the solidarity ( 11 ) See §13 of the German Inheritance and Gift Tax Act (Erbschaftsteuerund Schenkungsteuergesetz, ErbStG). Scenario a) Inheritance and gift taxation b) Labour income taxation Baseline  Inheritance and gift tax rules, in place in 2018  Tax and benefit rules, as of end of June 2018 1  All tax exemptions are replaced by an individual allowance of 400 000 per transfer  Current progressive tax rates (according to tax category I) are applied to all inheritances and gifts  Extending the midi-zone from 850 EUR to 2 000 EUR/month, phasing-in contributions linearly.  Increase of the solidarity surcharge threshold from EUR 81 to 317 (594)1) EUR/month under the conservative (optimistic) scenario 2  All tax exemptions are replaced by an individual allowance of EUR 400 000 per transfer  Current progressive tax rates are replaced by a flat rate of 10 %  Increase of the minimum threshold of the solidarity surcharge from EUR 81 to 156 (317) EUR/month under the conservative (optimistic) scenario (based on the personal income tax liability) 3  All tax exemptions are replaced by an individual allowance of EUR 400 000 per transfer  Current progressive tax rates are replaced by a flat rate of 15 %  Flattening of the "middle-class bulge" by extending the second tax bracket from EUR 13 996 to EUR 14 750 EUR (EUR 15 250) under the conservative (optimistic) scenario. 15 surcharge of 5.5%, originally introduced to support the German Reunification, is levied on the personal, capital and corporate tax liability exceeding EUR 81 per month. ( 12 ) We increase this monthly minimum threshold from EUR 81 to 316 (594) under the conservative (optimistic) estimate of additional inheritance and gift tax revenue, as described in Table 2. In other words, taxpayers whose PIT liability is below the new threshold are exempt from paying the solidarity surcharge. The second component, the midi-zone, is related to social security contributions, an important portion of the tax wedge. In Germany, ‘minijob’ holders (those with monthly gross earnings of no more than EUR 450) are exempt from employees’ compulsory social contributions, while for regular and ‘midi-job’ holders (those with monthly gross earnings between EUR 450-850 (midi-zone)), employees’ contributions are phased-in up to monthly earnings of EUR 850. ( 13 ) In this scenario, we extend the upper bound of the midi-zone from EUR 850 to 2 000/month, while phasing-in contributions linearly. As a result, a larger share of taxpayers in the extended midi-zone benefits from reduced social security contributions. Scenario 2 We replace inheritance and gift tax rates by a flat rate of 10%, which is applied to each transfer, after deducting the individual allowance of EUR 400 000. This flat tax scenario results in a substantially lower tax burden on the taxable share of inheritances or gifts above EUR 75 000 when compared to the first scenario (see Table 2). The labour income scenario is similar to the solidarity surcharge component of Scenario 1. The additional inheritance and gift tax revenue generated by the inheritance and gift tax reform is used to reduce the personal income tax (PIT) burden by making twice (four times) bigger the minimum threshold of the solidarity surcharge from EUR 81 to 156 (317) EUR/month, given the conservative (optimistic) estimate of inheritance and gift tax revenue. Scenario 3 Scenario 3 replaces the current inheritance and gift tax scheme with a flat rate of 15%, applied to each wealth transfer after deducting the individual allowance of EUR 400 000. Hence, the third inheritance and gift tax scenario is identical to the second one, except that it applies a higher flat tax rate of 15%. The additional inheritance and gift tax revenue, compared with the baseline scenario, is used to flatten the so-called German ‘middle-class bulge’, which is a peculiarity of the German personal income tax scheme. While the first EUR 9 000 of annual taxable income are exempt, the marginal tax rate increases sharply in the 2nd tax bracket between EUR 9 001 (14%) and EUR 13 996 (24%), and then less steeply up to EUR 54 949 (42%) in the 3rd tax bracket. The ‘middle-class bulge’ is responsible for the fast increase in the marginal tax rate in the second tax bracket, which mainly hits taxpayers with small incomes. The marginal tax rate for taxable income between EUR 54 949 and EUR 260 532 remains flat (42%), and the top marginal tax rate in the last tax bracket is 45% (all tax parameters refer to July 2018 and individual taxation). In order to reduce the middle class bulge, i.e. the steep increase of the marginal tax rate in the 2nd tax bracket, we extend the upper threshold from EUR 13 996 to EUR 14 750 (EUR 15 250), based on the conservative (optimistic) inheritance and gift tax revenue estimate. As a result, taxpayers with an annual taxable income above EUR 13 996 benefit in this scenario. 4.3 Simulation results 4.3.1 Inheritance and gift taxation The static overnight budgetary effect, in absence of behavioural responses, differs substantially across scenarios. This is shown in Table 3. While the first scenario yields about EUR 9 billion or 0.3% of GDP under the conservative estimate (EUR 12.7 billion, 0.4% of GDP under the optimistic estimate), in addition to the baseline, the additional tax revenue under the second scenario amounts to about EUR 550 million or 0.02% of GDP (EUR 2.3 billion or 0.1% of GDP) and to EUR 4 billion or 0.1% of GDP (EUR 6.5 billion, 0.2% of GDP) in the third scenario. For the large majority of inheritances and gifts no tax is due, as the first EUR 400 000 of each wealth transfer is tax-exempt in all scenarios (as in the baseline for transfers to children). In fact, the highest share of inheritance and gift tax revenue is paid on transfers above EUR 20 million in Scenario 1 (40%), when progressive tax schemes are applied (Figure 3). Imposing a proportional tax rate of 10% or 15%, in Scenario 2 and 3, respectively, most tax revenue comes from inheritances and gifts in the range of EUR 0.5 to 2.5 million (34%), followed by acquisitions of EUR 20 million and more (30%). ( 12 ) The tax shift simulations do not simulate changes to the solidarity surcharge levied on capital income. Furthermore, the simulations are based on the tax rules as of 2018. Therefore, they do not take into account that the solidarity surcharge has been removed for a large share of taxpayers in 2021. ( 13 ) In July 2019 the midi-zone has been extended from EUR 850 to EUR 1 300 of monthly earnings, which is not reflected in the simulations. 16 Table 3. Budgetary impact of the reform scenarios (in million euros) (1) PIT = Personal income tax; SSC = Social security contributions. EUROMOD simulations use 2018 tax rules as a benchmark, with 2016 incomes measured by the EU SILC survey, uprated to 2018. (2) The net budgetary effect in Part II is calculated as the total changes of taxes and social security contributions net of benefits: Net budgetary effect = change of tax revenue + change of social security contributions – change of means-tested benefits expenditures. Source: Own elaboration, model based on Bach and Thiemann (2016) (inheritance and gift taxation). Figure 3. Distribution of inheritance and gift tax revenue by transfer amount (1) In all three scenarios, the tax is levied on the net value of an inheritance or gift, applying a basic allowance of EUR400 000 per taxpayer. Tax rates vary across scenarios: the existing progressive rates in place in 2018, according to tax class I (Scenario 1), a proportional rate of 10% (Scenario 2), and proportional rate of 15% (Scenario 3). Source: Own elaboration, model based on Bach and Thiemann (2016). 4.3.2 Labour income taxation In a next step the distributional impact of the labour taxation scenarios was estimated using EUROMOD, the EU tax-benefit microsimulation model. Distributional results are illustrated based on the measure of equivalised disposable income as defined by the OECD. ( 14 )All three tax shift scenarios lower the tax wedge on labour and lead to higher net income across all deciles, as shown in Figure 4. The strongest redistributive effect comes from Scenario 1, where the threshold of the solidarity ( 14 ) Equivalised disposable income is calculated dividing household disposable income by the modified OECD equivalence scale. 0 1 2 3 4 5 6 7 8 below 0.3 0.3 - 0.5 0.5 - 2.5 2.5 - 5 5 - 10 10 - 20 20 and more Total tax revenue (in billion euros) Transfer amount (in million euros) Scenario 2 (conservative) Scenario 2 (optimistic) Scenario 3 (conservative) Scenario 3 (optimistic) Scenario 1 (conservative) Scenario 1 (optimistic) 17 surcharge is increased and the social security burden is reduced for households with lower and middle-incomes. The distributional impact of Scenario 2, where the solidarity surcharge is abolished for certain groups, is rather limited compared to the other scenarios. Under Scenario 3, where the personal income tax is reformed, all deciles of the income distribution benefit from flattening the ‘middle class bulge’, particularly households located between the 4th and the 9th decile (Figure 4). Figure 4. % change in mean annual equivalised disposable income with respect to the baseline under different tax shift scenarios, by decile (1) The equivalised disposable income is the total income of a household, after tax and other deductions, that is available for spending or saving, divided by the number of household members converted into equalised adults. Source: own elaboration. 4.3.3 Labour supply effects Finally, we estimate the labour supply effects from the labour taxation reforms using a structural discrete choice labour supply model. Figure A5 and Figure A6 in the Annex show that the changes in the total working hours are relatively small in all scenarios, which can be expected given the high employment rate in Germany. ( 15 ) In addition, women tend to adjust their labour supply more than men. This pattern is in line with the fact that women have much higher part-time employment rates than men, which results in more space to increase working hours. ( 16 ) The limited share of people without employment (inactive and unemployed) contribute to explain that the labour supply response comes mostly from the intensive margin (hours worked by people already employed) rather than the extensive margin (entering or leaving employment). Looking at labour supply by income levels, we find that individuals in the two lowest deciles increase their hours worked in all scenarios. This pattern is due to a lower marginal effective tax rate ( 17 ) compared to the baseline scenario and the higher labour supply elasticities of this group. For people in middle and high income deciles, the pattern is different across scenarios. In Scenario 3, they also increase their hours worked, but they reduce these somewhat in Scenario 1, while the effects are very limited in Scenario 2. This reflects the fact that these groups face a slightly higher marginal effective tax rate under Scenario 1 than under the baseline, which is in line with the simulation results by Bach et al., (2018) of a midi-job reform, while the marginal effective tax rates are roughly unchanged in Scenario 2. ( 15 ) Total working hours are an average of working hours supplied by the total sample population (including both employed and non-employed). ( 16 ) In Germany in 2018, 46.7% of employed women worked in part-time, while only 9.3% of employed men (for ages 20-64). ( 17 ) Marginal effective tax rates provide a measure of the share of additional income that would be taxed away because of taxes, social insurance contribution and benefit withdrawal. (For a detailed overview, see Jara and Tumino, 2013). 18 5 Conclusion Tax shifts away from labour towards wealth-related taxes, such as inheritance and gift taxes, could play an important role in improving equality of opportunity and supporting inclusive growth. This is particularly the case in the current COVID-19 pandemic, which calls for far-reaching measures to address the social and economic effects of the crisis and restore economic growth by shifting taxes away from distortionary labour taxation towards more efficient taxes that can also reduce inequality. Inheritance and gift taxes are amongst the most efficient ways of taxing wealth. Improving the design of inheritance and gift taxes by abolishing the far-reaching exemptions for business assets and lowering the tax rates could improve both the equity and the efficiency of the German inheritance and gift tax system, without endangering transferred businesses. The review of the literature suggests that neither theory nor evidence supports the far-reaching exemptions of business assets from the inheritance and gift tax or confirms their importance for safeguarding jobs, increasing investment activity, or ensuring liquidity. Our research has shown that by broadening the inheritance and gift tax base, the tax rates can be lowered significantly and the additional revenues generated could finance a reduction in labour taxes. We find that abolishing all exemptions would lead up to about EUR 9 billion (EUR 12.6 billion under the optimistic scenario) additional revenues, in the absence of behavioural responses. Lowering the tax rate to 15% could generate about EUR 4 billion (EUR 6.5 billion). Reducing the flat tax on inheritances and gift to 10% would yield about EUR 550 million (EUR 2.3 billion), in addition to the baseline. Under all three tax shift scenarios, the additional revenues from the reform of the inheritance and gift tax would allow a lowering of the tax wedge on labour that would lead to higher net income across all deciles. The strongest redistributive effect comes from the scenario where for lowerand middle-income people the solidarity surcharge is abolished and social security contributions are lowered. Under the third scenario, where the personal income tax is reformed, all deciles of the income distribution benefit from flattening the ‘middle class bulge’, in particular households located between the 4th and the 9th decile. The behavioural effects of the reforms on labour supply are relatively small and mainly concentrated in the intensive margin. Individuals in low-income deciles increase their labour supply in all scenarios due to lower marginal effective tax rates and their high labour supply elasticities. These findings indicate that well-designed reforms aimed at shifting taxes away from labour towards wealth-related taxes, such as inheritance and gift taxes, could play an important role in improving equality of opportunity and supporting inclusive growth in Germany. In the light of ageing societies, a shrinking labour force and lower share of labour in total income, governments need to look for alternative tax bases. Therefore, research should investigate to what extent inheritances and gifts can contribute to a fair sharing of the tax burden and to safeguarding public finances in the future. This is particularly important in the context of the Covid-19 crisis where governments accumulated a significant amount of public debt to finance the Covid-19 crisis measures. 19 References Albers, T.N.H., Bartels, C. and Schularick, M. (2020), ‘The Distribution of Wealth in Germany, 1895-2018’, ECONtribute Policy Brief No. 001. B Alvaredo, F., Garbinti, B., and Piketty, T. (2017), ‘On the share of inheritance in aggregate wealth: Europe and the USA, 1900– 2010’, Economica, Vol. 84, No 334, pp. 239-260. Bach, S. (2015), ‘Inheritance tax: Limit corporate privileges and spread tax burden’, DIW Economic Bulletin, ISSN 2192-7219, Vol. 5, No 7, pp. 91-99. Bach, S. (2016), ‘Erbschaftsteuer, Vermögensteuer oder Kapitaleinkommensteuer: Wie sollen hohe Vermögen besteuert werden?’, DIW Discussion Papers, No 1619, The German Economic Research Institute (DIW Berlin), Berlin. Bach, S. and Thiemann, A. (2016), ‘Inheritance Tax Revenue Low Despite Surge in Inheritances’, DIW Economic Bulletin, Vol. 6, No 4/5, pp. 41-48. Bach, S. (2018), ‘Familienangelegenheit?’, Leibniz Magazin, 03/2018, Leibniz Gemeinschaft, Berlin. Bach, S., Thiemann, A. and Zucco, A. (2019), ‘Looking for the missing rich: Tracing the top tail of the wealth distribution’, International Tax and Public Finance, Vol. 26, No 6, pp. 1234-1258. Bach, S., Buslei, H., and Harnisch, M. (2018), ‘Midijob-Reform entlastet Geringverdienende, vor allem teilzeiterwerbstätige Frauen’, DIW-Aktuell, No 16, 28. August 2018. Batchelder, L. (2009), ‘What should society expect from heirs? The case for a comprehensive inheritance tax’, Tax Law Review, Vol. 63, No 1, pp. 1-112. Bastani, S. and Waldenström D. (2019), ‘Salience of Inherited Wealth and the Support for Inheritance Taxation’, IFN Working Paper, No 1260. Batchelder, L. (2016), ‘The “Silver Spoon” tax: How to strengthen wealth transfer taxation’, in: Delivering equitable growth. Strategies for the next Administration, Washington Center for Equitable Growth. Bennedsen, M., Nielsen, K., Pèrez-Gonzàlez, F. and Wolfenzon, D. (2007), ‘Inside the Family Firm: The Role of Families in Succession Decisions and Performance’, Quarterly Journal of Economics, Vol. 122, No 2, pp. 647–691. Bocconi University (2011), The role and impact of labour taxation policies, Study for the European Commission, Final report. Bloom, N., and Van Reenen, J. (2007), ‘Measuring and Explaining Management Practices across Firms and Countries’, NBER Working Paper, No 12216. Brunner J. K. (2014), ‘Die Erbschaftsteuer – Bestandteil eines optimalen Steuersystems?’, Perspektiven der Wirtschaftspolitik, Vol. 19, No 3, pp. 193-218. Brys B., Perret S., Thomas A., and O’Reilly, P. (2016), ‘Tax design for inclusive economic growth’, OECD Taxation Working Papers, No 26, OECD Publishing. Brülhart, M., Dupertuis D., and Moreau E. (2018), ‘Inheritance Flows in Switzerland, 1911-2011’, Swiss Journal of Economics and Statistics, Vol. 154, No 8. Brülhart, M., Gruber, J., Krapf M. and Schmidheiny K. (2019), ‘Behavioural Responses to Wealth Taxes – Evidence from Switzerland’, Discussion Paper No 14054, Centre for Economic Policy Research. Federal Ministry of Finance, BMF (2012), ‘Die Begünstigung des Unternehmensvermögens in der Erbschaftsteuer’, Gutachten des Wissenschaftlichen Beirats beim Bundesministerium der Finanzen, 01/2012, Berlin. Federal Ministry of Finance, BMF (2018), Ergebnisse der Steuerschätzung November 2018. Federal Statistical Office, (2019), Finanzen und Steuern, Erbschaftund Schenkungssteuer 2018, August 2019. Dorn F., et al. (2017), ‘Die Erbschaftsteuer in Deutschland - Reformbedarf und Reformkompromiss’, ifo Schnelldienst, Vol. 70, No 1, 12. Januar 2017. Eggert, W. and Genser, B. (2005), ‘Dual Income Taxation in EU Member Countries’, CESifo DICE Report, 1/2005. Elinder, M., Erixson, O. and Ohlsson H. (2011), ‘Carnegie visits Nobel: Do inheritances affect labor and capital income? ’, Uppsala University Working Paper, 2011:5. Elinder, M., Erixson, O. and Waldenström, D. (2018), ‘Inheritance and wealth inequality: Evidence from population registers’, Journal of Public Economics, Vol. 165, September 2018, pp. 17-30. Erixson, O. and Escobar S. (2018), ‘Inheritance tax planning at the end of life’, Uppsala University Working Paper, 2018:5. 20 European Central Bank (2016), ‘The Household Finance and Consumption Survey: methodological report for the second wave’, ECB Statistics Paper, No 17, December 2016. European Commission (2018a), ‘Labour Taxation & Inclusive Growth’', Discussion Paper, No 084, July 2018. European Commission (2018b), Taxation Trends in the European Union, European Commission, Brussels. Garbinti, B. and Georges-Kot, S. (2017), ‘Time to smell the roses? The role of labor market attachment and risk aversion on the retirement effect of inheritance receipt’, INSEE CREST Working Paper. Goupille-Lebret, J. and Infante J. (2017), ‘Behavioral responses to inheritance tax: Evidence from notches in France’, INSEAD Working Paper, 2017/76. Grossmann, V. and Strulik, H. (2010), ‘Should continued family firms face lower taxes than other estates?’, Journal of Public Economics, Vol. 94, No 1-2, pp. 87-101. Haan, P., Kemptner, D. and Lüthen, H. (2019), ‘The rising longevity gap by lifetime earnings – Distributional implications for the pension system’, The Journal of the Economics of Ageing, https://doi.org/10.1016/j.jeoa.2019.100199. Heinemann, F., Spengel C., Bräutigam, R., and Evers M. (2015), Das Eckpunktepapier und der Referentenentwurf des BMF zur Erbschaftsteuer, Auswirkungen auf die effektive Erbschaftsteuerbelastung in Deutschland und internationaler Vergleich, Stiftung Familienunternehmen, Mannheim, 9.6.2015. Houben, H. and Maiterth, R. (2011), ‘Endangering of Business by the German Inheritance tax? An Empirical Analysis’, Betrieb und Recht (BuR), Vol. 4, März 2011. Hines Jr, J.R., Potrafke, N., Riem, M. and Schinke, C. (2016), ‘Inter Vivos Transfers of Ownership in Family Firms’, NBER Working Papers, No. 22301, National Bureau of Economic Research. Iara, A. (2015), ‘Wealth distribution and taxation in EU Members’, European Commission Taxation Papers, Working paper No 60. International Bureau of Fiscal Documentation (IBFD) (2018), European Tax Handbook 2018. Jara, H. X. and Tumino, A. (2013). ‘Tax-benefit systems, income distribution and work incentives in the European Union’, The International Journal of Microsimulation, 6, pp. 27-62. IMF (2014), Fiscal Monitor 2013: Taxing Times, International Monetary Fund, Washington. IMF (2019), Staff Report on the 2019 Article IV Consultation, International Monetary Fund, Washington. Kennickell, A. B. and Woodburn, R. L. (1999), ‘Consistent weight design for the 1989, 1992 and 1995 SCFs, and the distribution of wealth’, Review of Income and Wealth, Series 45, No 2, June 1999. Kindermann, F., Mayr, L. and Sachs, D. (2018), ‘Inheritance Taxation and Wealth Effects on the Labor Supply of Heirs’, Human Capital and Economic Opportunity Working Group Working Paper 2018-067. Kiziltepe, C. and Scholz, B. (2016), Die Erbschaftsteuer auf Betriebsvermögen gefährdet Arbeitsplätze, Steuermythen.de Kroh, M., Neiss, H., Kroll, L. and Lampert, T. (2012), ‘Menschen mit hohen Einkommen leben länger’, DIW Wochenbericht Vol. 79, No 38, pp. 3-15. Meghir, C. and Phillips, D. (2010), ‘Labour supply and taxes’, Dimensions of tax design: The Mirrlees review, pp. 202-74. Mirrlees, J. (1971), ‘An Exploration in the Theory of Optimum Income Taxation’, Review of Economic Studies, Vol. 38, pp. 175– 208. Narazani, E., Colombino, U. and Palma, B. (2021), ‘EUROLAB: A Multidimensional Labour Supply-Demand Model for EU Countries’, European Commission, Seville, 2021, JRC127383. OECD (2015), In it together: Why less inequality benefits all, OECD Publishing, Paris. OECD (2017), ‘The effects of the tax mix on inequality and growth”, OECD Economics Department Working Paper, No. 1447. OECD (2018), ‘The Role and Design of Net Wealth Taxes in the OECD’, OECD Tax Policy Studies, No. 26, OECD Publishing, Paris. OECD (2021), ‘Inheritance Taxation in OECD Countries, OECD Tax Policy Studies, OECD Publishing, Paris. Paetzold, J. and Tiefenbacher, M. (2018), ‘Distributional and revenue effects of a tax shift from labour to property’, International Tax and Public Finance, Vol. 25, No 5, pp. 1215-1251. Pérez-González, F. (2006), ‘Inherited Control and Firm Performance’, American Economic Review, Vol. 96, No 5, pp. 1559–1588. Piketty, T. and Saez, E. (2013a), ‘A theory of optimal inheritance taxation’, Econometrica, Vol. 81, No 5, pp. 1851-1886. 21 Piketty, T. and Saez, E. (2013b), ‘Rethinking capital and wealth taxation’, Paris School of Economics and UC Berkeley Working Paper, 2013. Sept. 17. Princen, S., Kalyva, A., Leodolter, A., Denis, C. and Reut, A. (2020), ‘Taxation of household capital in EU Member States - Impact on economic efficiency, revenue and redistribution’, European Commission Discussion Paper 130. Redonda, A. (2017), ‘Inheritance Taxation, Corporate Success and Sustainability’, Council of Economic Policies (CEP) Discussion note, 2017/1. Rietzler, K., Scholz, B., Teichmann, D. and Truger, A. (2016), ‘IMK-Steuerschätzung 2016-2020, Stabile Einnahmeentwicklung – Erbschaftsteuer nur Flickwerk’, IMK Report, No 114, Mai 2016. Scholz, B. and Truger A (2016), ‘Die Erbschaftstuerreform im Vermittlungsausschuss: Reduzierung oder Ausweitung der Privilegierung von Betriebsvermögen?’, IMK Policy Brief, September 2016. Schratzenstaller, M. (2013), ‘Vermögensbezogene Steuern. Ansatzpunkte, internationaler Vergleich und Optionen für Deutschland, Kurzgutachten zu Optionen einer Reform der Vermögensteuer in Deutschland, erstellt im Auftrag des Wirtschaftsund Sozialwissenschaftlichen Instituts (WSI) in der Hans-Böckler-Stiftung’, WIFO Studies, Wien, Mai 2013. Simon, H. (2009), Hidden Champions of the Twenty-First Century: The Success Strategies of Unknown World Market Leaders. Statistisches Bundesamt (Federal Statistical Office, 2016), Ergebnisse aus der laufenden Berechnung von Periodensterbetafeln für Deutschland und die Bundesländer 2013/2015. Statistisches Bundesamt (Federal Statistical Office, 2018), Vermögensbilanzen, Sektorale und gesamtwirtschaftliche Vermögensbilanzen 1999-2017. Stähler, N. (2019), ‘Who benefits from using property taxes to finance a labour tax wedge reduction?’, Bundesbank Discussion Paper, 3/2019. Sutherland, H. and Figari, F. (2013), ‘EUROMOD: the European Union tax-benefit microsimulation model’, International Journal of Microsimulation, Vol. 6, No 1, German Center for Higher Education, pp. 4-26. Tiefensee, A. and Grabka M. (2017), ‘Das Erbvolumen in Deutschland dürfte um gut ein Viertel größer sein als bisher angenommen’, DIW Wochenbericht, No 27, 2017. Truger, A. and Scholz, B. (2016), ‘Die Demontage der Erbschaftsteuer’, Wirtschaftsdienst, Vol. 96, No 6, pp. 378-379. Tsoutsoura, M. (2014), ‘The effect of succession taxes on family firm investment: evidence from a natural experiment’, The Journal of Finance, Vol. 70, No 2, pp. 649-688. Villalonga, B. and Amit, R. (2006), ‘How do Family Ownership, Control and Management affect Firm Value?’, Journal of Financial Economics, Vol. 80, No2, pp. 385–417. 22 List of figures Figure 1. Wealth taxes as a share of total tax revenues, EU-15 (2016) .................................................... 7 Figure 2. Taxes on wealth (2016) vs labour tax wedge on average earner, EU-15 (2018) ................................... 7 Figure 3. Distribution of inheritance and gift tax revenue by transfer amount .............................................16 Figure 4. % change in mean annual equivalised disposable income with respect to the baseline under different tax shift scenarios, by decile ...............................................................................17 Figure A5. Female labour supply effects by income decile, total hours of work ................................27 Figure A6. Male labour supply effects by income decile, total hours of work ...................................27 GETTING IN TOUCH WITH THE EU In person All over the European Union there are hundreds of Europe Direct information centres. You can find the address of the centre nearest you at: https://europa.eu/european-union/contact_en On the phone or by email Europe Direct is a service that answers your questions about the European Union. You can contact this service: - by freephone: 00 800 6 7 8 9 10 11 (certain operators may charge for these calls), - at the following standard number: +32 22999696, or - by electronic mail via: https://europa.eu/european-union/contact_en FINDING INFORMATION ABOUT THE EU Online Information about the European Union in all the official languages of the EU is available on the Europa website at: https://europa.eu/european-union/index_en EU publications You can download or order free and priced EU publications from EU Bookshop at: https://publications.europa.eu/en/publications. Multiple copies of free publications may be obtained by contacting Europe Direct or your local information centre (see https://europa.eu/european-union/contact_en).