LAUSR

Objective This article quantifies the economic effects of a fundamental reform proposal for Germany's social security system that integrates most parts of the prevailing social security insurances into the general tax‐transfer system. Methods Drawing on individual household data, we use a combined approach that employs both computable general equilibrium modeling and microsimulations. Results By discussing two revenue‐neutral reform scenarios that both encompass a negative income tax for low incomes and a flat tax rate otherwise, but differ in the effective marginal tax rates and tax allowances, we find a negligible or even negative impact on employment and GDP. Conclusion Our results cast doubt on whether such a fundamental reform would have positive welfare effects.