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On the Optimality of Joint Taxation for Non-Cooperative Couples

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  • Volker Meier

    ()

  • Helmut Rainer

    ()

Abstract

We present a non-cooperative 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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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2010/wp-cesifo-2010-07/cesifo1_wp3128.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3128.

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Date of creation: 2010
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Handle: RePEc:ces:ceswps:_3128

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Keywords: individual taxation; joint taxation; household production; public goods;

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References

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  1. 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.
  2. Kleven, Henrik & Kreiner, Claus Thustrup & Saez, Emmanuel, 2006. "The Optimal Income Taxation of Couples," CEPR Discussion Papers 5978, C.E.P.R. Discussion Papers.
  3. Imran Rasul, 2006. "The Economics of Child Custody," Economica, London School of Economics and Political Science, vol. 73(289), pages 1-25, 02.
  4. Zhiqi Chen & Frances Woolley, 1999. "A Cournot-Nash Model of Family Decision Making," Carleton Economic Papers 99-13, Carleton University, Department of Economics, revised Oct 2001.
  5. 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.
  6. 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).
  7. 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.
  8. Apps, P.F. & Rees, R., 1998. "On the Taxation of Trade Within and Between Households," Papers 337, Australian National University - Department of Economics.
  9. Boskin, Michael J. & Sheshinski, Eytan, 1983. "Optimal tax treatment of the family: Married couples," Journal of Public Economics, Elsevier, vol. 20(3), pages 281-297, April.
  10. Apps,Patricia & Rees,Ray, 2009. "Public Economics and the Household," Cambridge Books, Cambridge University Press, number 9780521887878, October.
  11. 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.
  12. Barham, Vicky & Devlin, Rose Anne & Yang, Jie, 2009. "A theory of rational marriage and divorce," European Economic Review, Elsevier, vol. 53(1), pages 93-106, January.
  13. Apps, Patricia & Rees, Ray, 2009. "Relational Contracts, Taxation and the Household," IZA Discussion Papers 4189, Institute for the Study of Labor (IZA).
  14. 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.
  15. Rainer, Helmut, 2007. "Should we write prenuptial contracts?," Munich Reprints in Economics 19819, University of Munich, Department of Economics.
  16. Patricia Apps & Ray Rees, 2007. "The Taxation of Couples," Discussion Papers 07/21, Department of Economics, University of York.
  17. 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.
  18. Dan Anderberg, 2007. "Inefficient households and the mix of government spending," Public Choice, Springer, vol. 131(1), pages 127-140, April.
  19. Helmut Rainer, 2005. "Should We Write Prenuptial Contracts?," Discussion Paper Series, Department of Economics 200514, Department of Economics, University of St. Andrews.
  20. 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.
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Citations

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Cited by:
  1. Meier, Volker, 2013. "One-sided private provision of public goods with implicit Lindahl pricing," Munich Reprints in Economics 19181, University of Munich, Department of Economics.
  2. Yu-Fu Chen & Michael Funke, 2010. "Global Warming and Extreme Events: Rethinking the Timing and Intensity of Environmental Policy," CESifo Working Paper Series 3139, CESifo Group Munich.
  3. 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).
  4. Meier, Volker & Wrede, Matthias, 2013. "Reducing the excess burden of subsidizing the stork: Joint taxation, individual taxation, and family tax splitting," Munich Reprints in Economics 19213, University of Munich, Department of Economics.
  5. Volker Meier & Helmut Rainer, 2012. "Beyond Ramsey: Gender-Based Taxation with Non-Cooperative Couples," CESifo Working Paper Series 3966, CESifo Group Munich.
  6. 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.
  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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