Better ways to design taxes

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Can a system of taxation be modified in such a way that every individual in a society is better off as a result? That is one of the research questions that occupy Emanuel Hansen, who is developing methods to help identify suitable tax reforms.

“We have come up with a tool that can analyze any tax-transfer system given by an income tax and welfare benefits such as housing and child benefits, for example,” Hansen explains. Taking the USA and Germany as two examples, the researcher and his co-authors have been able to demonstrate that it often makes sense to cut taxes in low income areas where transfer payments are frequently a means of subsistence. “For the people affected, it is then worthwhile to work more, which in turn boosts overall tax revenues,” the economist says. “If you do it properly, such a significant increase in employment can be reached that the reform pays for itself even though no one has a higher tax burden.”

Right now, the economist is working on fine-tuning the methodology. In the future, it should take account that only some of those who are potentially eligibly actually make use of transfer payments.

With a key focus on public finance, Emanuel Hansen took a professorship in economics at LMU in April 2023. “LMU has a fantastic research environment in economics,” he says. “The atmosphere is very cooperative, but also ambitious and constructive. As I see it, LMU is the best university in Germany for public finance.”

Starting out with a double degree

Given that he studied political science and economics at the University of Mainz, there were early indications that Emanuel Hansen could find himself working in the sphere where these two disciplines meet.

He earned his doctorate with papers on political competition and the optimal design of income taxes at the University of Bonn. After a year at the London School of Economics, he initially engaged in research in Bonn and Cologne before taking up a junior professorship at the University of Cologne in 2016. Before assuming his current position, Hansen already spent a year as an acting professor at LMU.

Tracking down income inequalities between men and women

Another field of research that interests the economist is family policy. “Taxing couples is a very difficult matter,” he says. “We know that Germany’s system of joint taxation for married couples reduces work incentives for the secondary earner.”

Hansen and his colleagues are currently investigating how the inequality in couples’ incomes has developed in Germany since the 1970s and to what extent it can be explained by family policy reforms: “Income disparities between women and men have narrowed over time in all Western countries, but full equality has never been reached. Up to the birth of the first child, there is often hardly any difference between women and men. That also goes for education, where women tend to have the edge over men. Once the first child is there, however, the picture changes very significantly."

Since moving to LMU, Hansen has also played a more pronounced role in policy consulting. Together with Professor Andreas Peichl and various other colleagues, he last year produced a report, commissioned by the Federal Ministry of Labor and Social Affairs, on reforming the German system of welfare transfers. A “fascinating experience”, Hansen calls it in retrospect. For him, engaging with political specialists was a rewarding experience: “I especially enjoyed applying our methods to the German context, and that inspired me to look at new research ideas. You obviously have to break your research findings down and make them easier to understand. But I see that as an important job of academia in any case – particularly in the social sciences and in economics.”