Merz: The Distribution of Income of Self-employed, Entrepreneurs and Professions
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professions, i.e. for the self-employed, the population quintiles with a lower income are
all smaller compared to those of the employees (see Figure 2).
In particular, the 90/10 ratio, which is the relation of the upper 10% to the lowest 10%
income cake, marks a strong right hand side distribution of the self-employed compared
to the employees. Nevertheless, it is remarkable that more than 40% of the employee's
net income cake is gained by the 5th quintile, the richest of 20%.
6.3 Redistributional Effects of Taxation of Employees and Self-
Employed (Entrepreneurs and Professions*)
One important aspect of any tax system is the size of its redistributional impact of
taxation. As in the case of the before tax situation we define the taxable income
situation. The after tax situation then is our net income situation. Thus, we analyze the
redistributional impacts strictly of the tax tariff (not the overall taxation) in particular,
since some parts (see the above definitions and the Appendix) of the tax system is
already taken into account to calculate the individual taxable income.
We like to measure the redistributional impacts by two approaches: first by the relative
differences of inequality measures, and, second, by an overall redistributive scheme
easily to be interpreted.
The relative differences of inequality measures of Table 4 are calculated as follows:
With all individual data inequality measures as in Table 3 are calculated for our before-
tax situation, the taxable income. Then the relative difference of the global measures
compared to the net income of Table 3 are calculated ((net-'gross')/'gross' in %). Thus,
the redistributional impacts of the fixed income tax (festgesetzte Einkommensteuer) is
our analytic concern.
The means of the self-employed are reduced by ca. 33% compared to ca. 20% of the
employees (Table 4). Relatively in the same order of magnitude both for entrepreneurs
and professions are all the further inequality measures which describes the
redistributional effects. The inequality is reduced by almost 10% for the self-employed
compared to ca. 7% for employees (Gini-coefficient). Inequality is the most reduced,
the more the situation of the lower income part is of concern (small Atkinson inequality
aversion index). The quintile relative changes show negative impacts for the 5th quintile:
with more than 6% for the self-employed compared to 2,5% of the employees, the
progressivity of the tax system becomes evident.