Establishment of a competence center for family benefits: Expert opinion “Distributional effects and fiscal consequences of various alternatives to spousal splitting”

The object of the study was to quantify the changes in income tax revenue and the tax burden and relief effects for different types of households that can be expected from a reform of spousal splitting.

The following options were considered as reform alternatives for the currently practiced spousal splitting:

• Family rate splitting: each spouse is assigned a splitting factor of 1, each child a factor of 0.5.
• French-style splitting: Like family splitting, but single-parent taxpayers are also assigned a splitting factor of 1.5.
• Real splitting: The spouses are assessed separately, but can transfer income of up to €15,000 (based on the special expense deduction for maintenance payments) to the lower-earning spouse.
• Family real splitting: Like real splitting, but income amounts of up to €8,000 per child (basic allowance) can also be transferred to children.

The 10% sample of wage and income tax statistics (1998), updated to 2005, and the 2003 income and consumption sample were used as the basis for the calculations. When updating the data, both demographic developments and the development of monetary variables such as income or deductible expenses of taxpayers were taken into account. This data basically reflects the information provided by taxpayers in their income tax returns.

The IAW tax simulation model was used to calculate the fiscal consequences. The model reproduces the existing assessment procedure in relative detail and is able to quantify the effects of changes in the assessment at micro level by making appropriate modifications. In the course of the study, it was extended so that all planned assessment variants could be calculated.