Abstract

German VAT will be raised by 3 percentage points on Jan. 1, 2007. This political measure is embedded in the general political frame: the necessity to consolidate public budgets, the current business cycle development, the financing of the social security system. Additional VAT revenue can be spend in different ways, either to reduce public debts, or to reduce social security contributions, or even to raise public spending as such. The alternative expenditure implies different employment effects in the short run they are simulated by Research Department 4, in the long run by Research Department 3.