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Income Taxation and Marital Decisions

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Author Info
Hector Chade () (W. P. Carey School of Business Department of Economics)
Gustavo Ventura (University of Western Ontario)

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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'.

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Paper provided by Department of Economics, W. P. Carey School of Business, Arizona State University in its series Working Papers with number 2133479.

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Handle: RePEc:asu:wpaper:2133479

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Burdett, Kenneth & Coles, Melvyn G, 1999. "Long-Term Partnership Formation: Marriage and Employment," Economic Journal, Royal Economic Society, vol. 109(456), pages F307-34, June. [Downloadable!] (restricted)
  2. Robert Shimer & Lones Smith, 2000. "Assortative Matching and Search," Econometrica, Econometric Society, vol. 68(2), pages 343-370, March.
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  3. Bagnoli, M. & Bergstrom, T., 1989. "Log-Concave Probability And Its Applications," Papers 89-23, Michigan - Center for Research on Economic & Social Theory.
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  4. Lones Smith, 2006. "The Marriage Model with Search Frictions," Journal of Political Economy, University of Chicago Press, vol. 114(6), pages 1124-1146, December. [Downloadable!] (restricted)
  5. Ken Burdett & Randall Wright, 1998. "Two-Sided Search with Nontransferable Utility," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(1), pages 220-245, January. [Downloadable!] (restricted)
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  6. 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, vol. 40(4), pages 869-87, November.
  7. Becker, Gary S, 1973. "A Theory of Marriage: Part I," Journal of Political Economy, University of Chicago Press, vol. 81(4), pages 813-46, July-Aug.. [Downloadable!] (restricted)
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  8. Alm, James & Whittington, Leslie A, 1995. "Income Taxes and the Marriage Decision," Applied Economics, Taylor and Francis Journals, vol. 27(1), pages 25-31, January.
  9. 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, vol. 41(1), pages 93-115, February.
  10. Chade, Hector, 2001. "Two-sided search and perfect segregation with fixed search costs," Mathematical Social Sciences, Elsevier, vol. 42(1), pages 31-51, July. [Downloadable!] (restricted)
  11. Burdett, Ken & Coles, Melvyn G, 1997. "Marriage and Class," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 141-68, February.
  12. An, Mark Yuying, 1998. "Logconcavity versus Logconvexity: A Complete Characterization," Journal of Economic Theory, Elsevier, vol. 80(2), pages 350-369, June. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Shannon N. Seitz, 2002. "Accounting for Racial Differences in Marriage and Employment," Working Papers 1009, Queen's University, Department of Economics. [Downloadable!]
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  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. [Downloadable!]
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