The Distribution of Income of Self-employed, Entrepreneurs and Professions as Revealed from Micro Income Tax Statistics in Germany

Merz: The Distribution of Income of Self-employed, Entrepreneurs and Professions

Table 4:     Redistributional Effects of Taxation in Germany 1992: Employees

and Self-Employed (Entrepreneurs and Professionals*)

Net income = individual taxable income minus fixed income tax (yearly)

All working = employees and self-employed (entrepreneurs and professions*);

not included: income predominant from capital assets, let and lease, other sources
Self-employed are divided in entrepreneurs (with profit income from agriculture and forestry and from
trading) and in professions* here as the independent (the number of independent
persons are by far dominated by the number of professions (Freie Berufe)

k = redistributional effect in DM

R = k/mean: redistributional effect as % of mean gross income (=2(Gini(nett)-Gini(gross))*100

Source: Income Tax Statistic 1992, Sample of Individual Incomes and Taxes,

Federal Statistical Office 1999, 1995; Own calculations

The above measures show different impacts with regard to different part of the income
distribution. An overall redistributional and easily to be interpretable measure is the k-
measure by Blackburn 1989. Blackburn considers a simple redistributive scheme: to
every income unit below the median level of income an equal-sized, lump-sum tax, is
applied while transferring the value of the lump-sum tax to every unit above the median
(or vice versa). The redistributional effect, the impact here of the taxation system then is
that value of the lump-sum as a percentage of the mean level of before tax income. As
Blackburn (1989) has shown the respective index partitioning is valid only for the Gini-
coefficient resulting in

(1) R = k/mean b_ef_{ore tax} = 2(Gini _af_{ter tax} - Gini b_ef_{ore tax})

The redistributional impacts of the German tax system 1992 are: R% from mean taxable
income, or equivalent k DM, is the lump-sum necessary to make the net income
distribution - after imposing the tax system - equally distributed (same inequality index)
as 'gross' taxable income: for employees R= -5,9% (k = -2.486 DM), for entrepreneurs
R = -13,6   % (k = -12.424 DM) and for professions* R = -11,7%

(k = -15.557 DM) is the necessary amount every person above the median had to
transfer to the persons below the median to achieve the same distributional measure
before and after.

<<   20   21   22   23   24   25   26   >>

More intriguing information