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Optimal Taxation, Child Care and Models of the Household

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  • Patricia Apps
  • Ray Rees

Abstract

This paper presents for the .rst time the properties of optimal piece-wise linear tax systems for two-earner households, based on joint and individual incomes respectively. A key contribution is the analysis of the interaction of second earner wage di¤erences, variation in prices of bought-in inputs into household production in the form of child care, and domestic productivity differences as determinants of across-household heterogeneity in second earner labour supply. The analysis highlights the importance of the elasticity of substitution between parental and non-parental child care in determining the relationship between utility and income across households. A central result is that taking account of a richer and more realistic specification of household time use widens the set of cases in which individual taxation is welfare-superior to joint taxation.

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Bibliographic Info

Paper provided by Centre for Economic Policy Research, Research School of Economics, Australian National University in its series CEPR Discussion Papers with number 673.

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Date of creation: Nov 2012
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Handle: RePEc:auu:dpaper:673

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Keywords: Optimal taxation; time allocation; household production; child care; labour supply; inequality;

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  1. Helmuth Cremer & Jean-Marie Lozachmeur & Pierre Pestieau, 2012. "Income taxation of couples and the tax unit choice," Journal of Population Economics, Springer, Springer, vol. 25(2), pages 763-778, January.
  2. Slemrod, Joel & Yitzhaki, Shlomo & Mayshar, Joram & Lundholm, Michael, 1994. "The optimal two-bracket linear income tax," Journal of Public Economics, Elsevier, Elsevier, vol. 53(2), pages 269-290, February.
  3. Douglas Almond & Janet Currie, 2010. "Human Capital Development Before Age Five," NBER Working Papers 15827, National Bureau of Economic Research, Inc.
  4. Dahlby, Bev, 1998. "Progressive taxation and the social marginal cost of public funds," Journal of Public Economics, Elsevier, Elsevier, vol. 67(1), pages 105-122, January.
  5. Boskin, Michael J. & Sheshinski, Eytan, 1983. "Optimal tax treatment of the family: Married couples," Journal of Public Economics, Elsevier, Elsevier, vol. 20(3), pages 281-297, April.
  6. Sandmo, Agnar, 1990. "Tax Distortions and Household Production," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 78-90, January.
  7. Raj Chetty, 2008. "Sufficient Statistics for Welfare Analysis: A Bridge Between Structural and Reduced-Form Methods," NBER Working Papers 14399, National Bureau of Economic Research, Inc.
  8. Apps, P.F. & Rees, R., 1998. "On the Taxation of Trade Within and Between Households," Papers, Australian National University - Department of Economics 337, Australian National University - Department of Economics.
  9. Henrik Jacobsen Kleven & Claus Thustrup Kreiner & Emmanuel Saez, 2009. "The Optimal Income Taxation of Couples," Econometrica, Econometric Society, Econometric Society, vol. 77(2), pages 537-560, 03.
  10. Craig Brett, 2007. "Optimal nonlinear taxes for families," International Tax and Public Finance, Springer, Springer, vol. 14(3), pages 225-261, June.
  11. Sheshinski, Eytan, 1989. "Note on the shape of the optimum income tax schedule," Journal of Public Economics, Elsevier, Elsevier, vol. 40(2), pages 201-215, November.
  12. Alberto Alesina & Andrea Ichino & Loukas Karabarbounis, 2007. "Gender Based Taxation and the Division of Family Chores," NBER Working Papers 13638, National Bureau of Economic Research, Inc.
  13. Sadka, Efraim, 1976. "On Income Distribution, Incentive Effects and Optimal Income Taxation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 43(2), pages 261-67, June.
  14. Lundborg, Petter & Nilsson, Anton & Rooth, Dan-Olof, 2012. "Parental Education and Offspring Outcomes: Evidence from the Swedish Compulsory Schooling Reform," IZA Discussion Papers 6570, Institute for the Study of Labor (IZA).
  15. Apps, Patricia F. & Rees, Ray, 1988. "Taxation and the household," Journal of Public Economics, Elsevier, Elsevier, vol. 35(3), pages 355-369, April.
  16. Immervoll, Herwig & Kleven, Henrik Jacobsen & Kreiner, Claus Thustrup & Verdelin, Nicolaj, 2011. "Optimal tax and transfer programs for couples with extensive labor supply responses," Journal of Public Economics, Elsevier, Elsevier, vol. 95(11), pages 1485-1500.
  17. Martin Feldstein & Daniel R. Feenberg, 1996. "The Taxation of Two-Earner Families," NBER Chapters, in: Empirical Foundations of Household Taxation, pages 39-75 National Bureau of Economic Research, Inc.
  18. Sheshinski, Eytan, 1972. "The Optimal Linear Income-Tax," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 39(3), pages 297-302, July.
  19. Patricia Apps & Ngo Van Long & Ray Rees, 2009. "Optimal Piecewise Linear Income Taxation," CESifo Working Paper Series 2565, CESifo Group Munich.
  20. Rees, Ray, 1988. "Taxation and the Household," Munich Reprints in Economics, University of Munich, Department of Economics 3411, University of Munich, Department of Economics.
  21. Schroyen, Fred, 2003. "Redistributive taxation and the household: the case of individual filings," Journal of Public Economics, Elsevier, Elsevier, vol. 87(11), pages 2527-2547, October.
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Cited by:
  1. Apps, Patricia & Rees, Ray, 2012. "Capital Income Taxation and the Mirrlees Review," IZA Discussion Papers 6615, Institute for the Study of Labor (IZA).

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