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Title:Severance Pay and the Shadow of the Law: Evidence for West Germany PDF Logo
Authors:Goerke, Laszlo
Pannenberg, Markus
Issue Date:2005
Series/Report no.:DIW-Diskussionspapiere 541
Abstract:Due to the complexity of employment protection legislation (EPL) in Germany, there is notable uncertainty about the outcomes of dismissal conflicts. In this study we focus on severance pay and inquire whether its incidence and level varies in a systematic manner with the legal rules as defined by labour as well as tax law. We start with a theoretical model that generates the main observable outcomes of dismissal conflicts as potential equilibrium situations. Using German panel data (GSOEP), we put our theoretical model to an empirical test. Our main result is that the shadow of the law matters. Criteria regarding the validity of dismissals either found in respective legislation or defined by labour courts significantly affect the incidence and magnitude of severance pay. Moreover, restrictive changes in the taxation of severance pay have a negative causal impact on its incidence.
Subjects:severance pay
labour law
taxation
sample selection
survey data
JEL:J65
K31
C24
H24
C23
Document Type:Working Paper
Appears in Collections:Publikationen von Forscherinnen und Forschern des DIW
DIW-Diskussionspapiere

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