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Income Taxation and Marital Decisions

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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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  1. Lones Smith, 2006. "The Marriage Model with Search Frictions," Journal of Political Economy, University of Chicago Press, vol. 114(6), pages 1124-1146, December.
  2. An, Mark Yuying, 1998. "Logconcavity versus Logconvexity: A Complete Characterization," Journal of Economic Theory, Elsevier, vol. 80(2), pages 350-369, June.
  3. 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.
  4. Mark Bagnoli & Ted Bergstrom, 2005. "Log-concave probability and its applications," Economic Theory, Springer, vol. 26(2), pages 445-469, 08.
  5. 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..
  6. BLOCH, Francis & RYDER, Harl, 1994. "Two-Sided Search, Marriages and Matchmakers," CORE Discussion Papers 1994028, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. 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.
  8. Robert Shimer & Lones Smith, 2000. "Assortative Matching and Search," Econometrica, Econometric Society, vol. 68(2), pages 343-370, March.
  9. Kenneth Burdett & Randall Wright, 1994. "Two-sided search," Staff Report 169, Federal Reserve Bank of Minneapolis.
  10. 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.
  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. Jan Eeckhout, 1996. "Bilateral Search and Vertical Heterogeneity," STICERD - Theoretical Economics Paper Series /1996/315, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  13. Chade, Hector, 2001. "Two-sided search and perfect segregation with fixed search costs," Mathematical Social Sciences, Elsevier, vol. 42(1), pages 31-51, July.
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Cited by:
  1. Shannon Seitz, 2009. "Accounting for Racial Differences in Marriage and Employment," Journal of Labor Economics, University of Chicago Press, vol. 27(3), pages 385-437, 07.
  2. Nancy R. Burstein, 2007. "Economic influences on marriage and divorce," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 26(2), pages 387-429.
  3. Marion Leturcq, 2011. "Would you civil union me?," PSE Working Papers halshs-00628642, HAL.
  4. repec:hal:wpaper:halshs-00566846 is not listed on IDEAS
  5. John Knowles, 2006. "Why are Married Men Working So Much?," 2006 Meeting Papers 445, Society for Economic Dynamics.
  6. LETURCQ, Marion, . "Will you civil union me? Taxation and civil unions in France," CORE Discussion Papers RP -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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