Most households in Germany benefit from the abolition of the solidarity surcharge since the beginning of 2021 with an average of around 57 euros more per month. In an experiment, households opt for a long-term savings strategy or use the extra income directly for living expenses or vacations, depending on whether they are presented with the bonus over a period of one month, one year or ten years. The experiment was conducted by researchers at the Leibniz Institute for Financial Market Research SAFE and Goethe University Frankfurt based on survey data from a large German private bank.
"We looked at what the cut of the solidarity surcharge does as a consumption stimulus when the resulting financial bonus is available to households at different points in time," explains Andreas Hackethal, director of the research department Household Finance at SAFE. "The experiment shows that the temporal framing of the bonus into a specific time slot significantly influences what the money is spent on."
During the experiment, the amount of the bonus always remained the same on balance. However, the temporal framing of the bonus showed that households change their saving and consumption behavior depending on whether the income increase was presented to them on a monthly, annual, or ten-year basis.
Households use bonuses for consumption in the short term and for investment in the longer term
Of the total of 1,524 households in Germany that, according to the survey results, will have more money available with the tax cut, around 44 percent plan to spend the bonus, 45 percent to save it, and eleven percent to use it to repay debts. Despite the current low interest rates, a large proportion of respondents plan to save the bonus only in a bank account (eleven percent of the bonus) or in cash (five percent of the bonus).
If the bonus is presented as a monthly amount, respondents are more likely to spend it, especially on living expenses (22 percent of the bonus), and less likely to invest the portion they want to save in securities (18 percent of the bonus). If the bonus is presented as a credit for ten years, the money is more likely to be spent on more durable purchases (14 percent of the bonus) or invested in stocks (24 percent of the bonus).
"Particularly younger people want to use the financial bonus from the abolishment of the solidarity surcharge to save, and only just under a quarter of respondents want to use it to repay debts," says Thomas Pauls, a researcher at Goethe University in Frankfurt. For the experiment, initial surveys were conducted at the end of 2020 among households in Germany of which 1,740 provided complete responses. The amount of the bonus was extrapolated based on available income data. A second wave of surveys is currently underway to compare the results from the experiment with the actual abolition of the soli, which takes effect on 1 January 2021.
Download the SAFE Working Paper No. 308
Scientific contact
Prof. Dr. Andreas Hackethal
Director of the SAFE research department Household Finance
Email: hackethal@safe-frankfurt.de
Phone: +49 69 798 33700
