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Income Taxation and Marital Decisions

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  • Hector Chade

    (Arizona State University)

  • Gustavo Ventura

    (Pennsylvania State University)

Abstract

Differential tax treatment of married and single people is a key feature of the tax law in the US and other countries. We develop a matching model with search frictions to analyze the effects these tax provisions have on marriage formation and dissolution. Our main results are the following: (i) although an increase in the .marriage tax. reduces the number of marriages, there is a two-sided search effect that can substantially mitigate its impact on marriage formation and dissolution; (ii) an increase in the .marriage tax. need not make both men and women more reluctant to marry; (iii) the effects of a given change in the differential taxation on marital behavior depend on whether it is implemented via changes in the tax rates that singles face or in the tax rates that married people face, as well as on the ability of the spouses to transfer utility between them; (iv) a computed example reveals that large changes in the marriage tax penalty can lead to small changes in the number of marriages and divorces, and that the number of divorces can increase with a reduction in the 'marriage tax.' (Copyright: Elsevier)

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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 8 (2005)
Issue (Month): 3 (Juky)
Pages: 565-599

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Handle: RePEc:red:issued:v:8:y:2005:i:3:p:565-599

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Keywords: Marriage Penalty; Marriage Tax; Two-Sided Search; Matching;

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References

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  1. Ken Burdett & Randall Wright, 1998. "Two-Sided Search with Nontransferable Utility," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(1), pages 220-245, January.
  2. Bloch, Francis & Ryder, Harl, 2000. "Two-Sided Search, Marriages, and Matchmakers," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(1), pages 93-115, February.
  3. Bagnoli, M. & Bergstrom, T., 1989. "Log-Concave Probability And Its Applications," Papers, Michigan - Center for Research on Economic & Social Theory 89-23, Michigan - Center for Research on Economic & Social Theory.
  4. Becker, Gary S, 1973. "A Theory of Marriage: Part I," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 81(4), pages 813-46, July-Aug..
  5. Burdett, Kenneth & Coles, Melvyn G, 1999. "Long-Term Partnership Formation: Marriage and Employment," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 109(456), pages F307-34, June.
  6. Burdett, Ken & Coles, Melvyn G, 1997. "Marriage and Class," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(1), pages 141-68, February.
  7. Chade, Hector, 2001. "Two-sided search and perfect segregation with fixed search costs," Mathematical Social Sciences, Elsevier, Elsevier, vol. 42(1), pages 31-51, July.
  8. Sjoquist, David L. & Walker, Mary Beth, 1995. "The Marriage Tax and the Rate and Timing of Marriage," National Tax Journal, National Tax Association, vol. 48(4), pages 547-58, December.
  9. An, Mark Yuying, 1998. "Logconcavity versus Logconvexity: A Complete Characterization," Journal of Economic Theory, Elsevier, Elsevier, vol. 80(2), pages 350-369, June.
  10. Shimer, R. & Smith, L., 1998. "Assortive Matching and Search," Papers, Michigan - Center for Research on Economic & Social Theory 98-09, Michigan - Center for Research on Economic & Social Theory.
  11. Lones Smith, 2006. "The Marriage Model with Search Frictions," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 114(6), pages 1124-1146, December.
  12. Eeckhout, Jan, 1999. "Bilateral Search and Vertical Heterogeneity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 869-87, November.
  13. Alm, James & Whittington, Leslie A., 1995. "Does the Income Tax Affect Marital Decisions?," National Tax Journal, National Tax Association, vol. 48(4), pages 565-72, December.
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Citations

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Cited by:
  1. Nancy R. Burstein, 2007. "Economic influences on marriage and divorce," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 26(2), pages 387-429.
  2. John Knowles, 2005. "Why are Married Men Working So Much?," PIER Working Paper Archive 05-031, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  3. repec:hal:wpaper:halshs-00566846 is not listed on IDEAS
  4. Shannon Seitz, 2009. "Accounting for Racial Differences in Marriage and Employment," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 27(3), pages 385-437, 07.
  5. Marion Leturcq, 2011. "Would you civil union me?," PSE Working Papers, HAL halshs-00628642, HAL.
  6. LETURCQ, Marion, . "Will you civil union me? Taxation and civil unions in France," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -2445, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. repec:hal:wpaper:halshs-00628642 is not listed on IDEAS

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