Effects of tax reform on average personal income tax burden and tax progressivity in Germany under the particular consideration of bracket creep

This study primarily aims to contribute to the ongoing debates on bracket creep and examine whether Germany needs to integrate inflation indexation into its personal income tax system in order to reduce distortions of tax liabilities and additional tax burdens. Germany has continuously flattened the personal income tax rates in the context of a series of tax reforms and modified its tax system. Under the consideration of the major goals of these reforms, this study compares the extent to which previous reform efforts, made in this country since 1958, led to changes in the real, inflation-adjusted average personal income tax burden of single earners in 2014. Furthermore this study examines the changes in progressivity of tax rates over the same period of time, which is measured by the coefficient of residual income progression (CRIP). According to the long-term real view adopted in this study, the evolution of the German personal income tax system made middle-income single earners worse off, while both the lower and higher income groups are significantly better off.