Since the foundation of the Centre for European Economic Research (ZEW) in 1991 research activities has been applied to the measurement of tax burdens. While the main focus is on international tax burden comparisons, national issues like the choice of the legal form are considered as well. Recently the taxation of highly qualified employees and the inheritance tax expanded the research activities.
The research relies on a broad methodological basis. For example the ZEW developed in a joint research project with the University of Mannheim a computer-based model, the so called European Tax Analyzer, for the computation and comparison of the tax burdens. This tool allows to compute effective tax burdens of partnerships and corporations including their shareholders located in different countries over a period of ten years. In its function as evaluation tool the European Tax Analyzer has been validated by the European Commission as well as the German Council of Economic Experts.
In addition to the European Tax Analyzer, instruments for the measurement of effective tax burdens based on the neoclassical investment theory are also available at the ZEW. On the one hand, this contains the approach by King and Fullerton, internationally well-known since 1984, and, on the other hand, the extended approach by Devereux and Griffith, published with regard to the taxation of highly skilled employees in 1999.
The ZEW also developed a completely new approach to measure the effective average tax burden on highly qualified employees. It allows considering several components of the remuneration package, the family status, and varying levels of compensation. This concept parallels established methodologies for the quantification of company tax burdens by calculating the effective average tax rate (EATR) as an indicator of the tax burden. The basic idea of our approach is that employers compete for highly qualified employees and therefore have to compensate these for taxes on labour income and tax-like social security contributions. As a consequence, the tax burden of different regions is compared for a given disposable income after taxes which the employee can obtain at all locations.
Besides the measurement of effective tax burdens of companies and highly qualified manpower the ZEW also analyses numerous other taxation instruments such as the impact of inheritance tax, environmental levies.
The well established models to determine effective tax rates are supplemented by the microsimulation model ZEW TaxCoMM which was developed in cooperation with the University of Mannheim. ZEW TaxCoMM allows for the coherent micro-based analysis of revenue implications of tax reforms and the distribution of tax consequences among heterogeneous firms. This is accomplished by simulation the firm specific tax assessment in a detailed way and by resorting to firm-level financial accounting data of German corporations. Hence, ZEW TaxCoMM allows for a profound analysis of tax reform options.
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