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On the optimality of joint taxation for noncooperative couples

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Author Info

  • Meier, Volker
  • Rainer, Helmut

Abstract

We present a noncooperative model of a family's time allocation between work and a home-produced public good, and examine whether the income tax should apply to couples or individuals. While tax-induced labor supply distortions lead to overprovision of the public good, spouses' failure to internalize the collective effect of their choices points towards underprovision. A large parameter range exists for which a move from individual to joint taxation improves the welfare of both spouses. The source of Pareto-improvement consists in moving the level of the public good closer to its first-best, while an adjustment of intra-family transfers compensates the secondary earner for the increased tax load.

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Bibliographic Info

Article provided by Elsevier in its journal Labour Economics.

Volume (Year): 19 (2012)
Issue (Month): 4 ()
Pages: 633-641

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Handle: RePEc:eee:labeco:v:19:y:2012:i:4:p:633-641

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Web page: http://www.elsevier.com/locate/labeco

Related research

Keywords: Individual taxation; Joint taxation; Household production; Public goods;

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References

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  1. Rainer, Helmut, 2007. "Should we write prenuptial contracts?," Munich Reprints in Economics 19819, University of Munich, Department of Economics.
  2. Henrik Jacobsen Kleven & Claus Thustrup Kreiner & Emmanuel Saez, 2006. "The Optimal Income Taxation of Couples," NBER Working Papers 12685, National Bureau of Economic Research, Inc.
  3. Volker Meier & Matthias Wrede, 2013. "Reducing the excess burden of subsidizing the stork: joint taxation, individual taxation, and family tax splitting," Journal of Population Economics, Springer, vol. 26(3), pages 1195-1207, July.
  4. Apps, Patricia & Rees, Ray, 2009. "Relational Contracts, Taxation and the Household," IZA Discussion Papers 4189, Institute for the Study of Labor (IZA).
  5. Helmut Rainer, 2003. "Should We Write Prenuptial Contracts?," Economics Discussion Papers 572, University of Essex, Department of Economics.
  6. Imran Rasul, 2006. "The Economics of Child Custody," Economica, London School of Economics and Political Science, vol. 73(289), pages 1-25, 02.
  7. Alesina, Alberto & Ichino, Andrea & Karabarbounis, Loukas, 2007. "Gender Based Taxation and the Division of Family Chores," IZA Discussion Papers 3233, Institute for the Study of Labor (IZA).
  8. Konrad, Kai A & Lommerud, Kjell Erik, 1995. " Family Policy with Non-cooperative Families," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 581-601, December.
  9. Piggott, John & Whalley, John, 1996. "The Tax Unit and Household Production," Journal of Political Economy, University of Chicago Press, vol. 104(2), pages 398-418, April.
  10. Michael J. Boskin & Eytan Sheshinski, 1979. "Optimal Tax Treatment of the Family: Married Couples," NBER Working Papers 0368, National Bureau of Economic Research, Inc.
  11. Chen, Zhiqi & Woolley, Frances, 2001. "A Cournot-Nash Model of Family Decision Making," Economic Journal, Royal Economic Society, vol. 111(474), pages 722-48, October.
  12. Apps,Patricia & Rees,Ray, 2009. "Public Economics and the Household," Cambridge Books, Cambridge University Press, number 9780521716284, October.
  13. Apps, Patricia & Rees, Ray, 2007. "The Taxation of Couples," IZA Discussion Papers 2910, Institute for the Study of Labor (IZA).
  14. Vicky Barham & Rose Anne Devlin, 2004. "A Theory of Rational Marriage and Divorce," Working Papers 0405E, University of Ottawa, Department of Economics.
  15. Patricia F. Apps & Ray Rees, 1999. "Individual versus Joint Taxation in Models with Household Production," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 393-403, April.
  16. Apps, Patricia & Rees, Ray, 1999. "On the taxation of trade within and between households," Journal of Public Economics, Elsevier, vol. 73(2), pages 241-263, August.
  17. Lundberg, Shelly & Pollak, Robert A, 1993. "Separate Spheres Bargaining and the Marriage Market," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 988-1010, December.
  18. Peter Gottfried & Wolfram Richter, 1999. "The Tax Unit and Household Production: Comment," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 404-409, April.
  19. Dan Anderberg, 2007. "Inefficient households and the mix of government spending," Public Choice, Springer, vol. 131(1), pages 127-140, April.
  20. Pollak, Robert A, 1985. "A Transaction Cost Approach to Families and Households," Journal of Economic Literature, American Economic Association, vol. 23(2), pages 581-608, June.
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Citations

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Cited by:
  1. Volker Meier, 2013. "One-sided private provision of public goods with implicit Lindahl pricing," Journal of Economics, Springer, vol. 110(2), pages 181-186, October.
  2. Volker Meier & Helmut Rainer, 2012. "Beyond Ramsey: Gender-Based Taxation with Non-Cooperative Couples," CESifo Working Paper Series 3966, CESifo Group Munich.
  3. Volker Meier & Matthias Wrede, 2013. "Reducing the excess burden of subsidizing the stork: joint taxation, individual taxation, and family tax splitting," Journal of Population Economics, Springer, vol. 26(3), pages 1195-1207, July.
  4. Yu-Fu Chen & Michael Funke, 2010. "Global Warming And Extreme Events: Rethinking The Timing And Intensity Of Environmental Policy," Dundee Discussion Papers in Economics 236, Economic Studies, University of Dundee.
  5. Volker Meier & Helmut Rainer, 2014. "Pigou Meets Ramsey: Gender-Based Taxation with Non-Cooperative Couples," Ifo Working Paper Series Ifo Working Paper No. 179, Ifo Institute for Economic Research at the University of Munich.
  6. Hans Fehr & Manuel Kallweit & Fabian Kindermann, 2013. "Reforming Family Taxation in Germany: Labor Supply vs. Insurance Effects," SOEPpapers on Multidisciplinary Panel Data Research 613, DIW Berlin, The German Socio-Economic Panel (SOEP).
  7. Paula GOBBI, 2013. "Childcare and Commitment within Households," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2013019, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).

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