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On the Optimality of Joint Taxation for Non-Cooperative Couples

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  • Volker Meier

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  • 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. 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.
  2. Alberto Alesina & Andrea Ichino & Loukas Karabarbounis, 2011. "Gender-Based Taxation and the Division of Family Chores," American Economic Journal: Economic Policy, American Economic Association, vol. 3(2), pages 1-40, May.
  3. Vicky Barham & Rose Anne Devlin, 2004. "A Theory of Rational Marriage and Divorce," Working Papers 0405E, University of Ottawa, Department of Economics.
  4. Apps,Patricia & Rees,Ray, 2009. "Public Economics and the Household," Cambridge Books, Cambridge University Press, number 9780521716284, October.
  5. Chen, Zhiqi & Woolley, Frances, 2001. "A Cournot-Nash Model of Family Decision Making," Economic Journal, Royal Economic Society, vol. 111(474), pages 722-48, October.
  6. Jonathan P Thomas & Tim Worrall, 2010. "Dynamic Relational Contracts with Credit Constraints," The School of Economics Discussion Paper Series 1009, Economics, The University of Manchester.
  7. Rainer, Helmut, 2007. "Should we write prenuptial contracts?," Munich Reprints in Economics 19819, University of Munich, Department of Economics.
  8. Rainer, Helmut, 2007. "Should we write prenuptial contracts?," European Economic Review, Elsevier, vol. 51(2), pages 337-363, February.
  9. Volker Meier & Matthias Wrede, 2008. "Reducing the Excess Burden of Subsidizing the Stork: Joint Taxation, Individual Taxation, and Family Tax Splitting," CESifo Working Paper Series 2470, CESifo Group Munich.
  10. Henrik Jacobsen Kleven & Claus Thustrup Kreiner & Emmanuel Saez, 2006. "The Optimal Income Taxation of Couples," NBER Working Papers 12685, National Bureau of Economic Research, Inc.
  11. Apps, Patricia & Rees, Ray, 2007. "The Taxation of Couples," IZA Discussion Papers 2910, Institute for the Study of Labor (IZA).
  12. Apps, Patricia & Rees, Ray, 2009. "Relational Contracts, Taxation and the Household," IZA Discussion Papers 4189, Institute for the Study of Labor (IZA).
  13. Imran Rasul, 2006. "The Economics of Child Custody," Economica, London School of Economics and Political Science, vol. 73(289), pages 1-25, 02.
  14. Lundberg, S. & Pollak, R.A., 1991. "Separate Spheres Bargaining and the Marriage Market," Discussion Papers in Economics at the University of Washington 91-08, Department of Economics at the University of Washington.
  15. Apps, Patricia & Rees, Ray, 1999. "On the taxation of trade within and between households," Journal of Public Economics, Elsevier, vol. 73(2), pages 241-263, August.
  16. 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.
  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. Michael J. Boskin & Eytan Sheshinski, 1984. "Optimal Tax Treatment of the Family: Married Couples," NBER Working Papers 0368, National Bureau of Economic Research, Inc.
  19. Dan Anderberg, 2007. "Inefficient households and the mix of government spending," Public Choice, Springer, vol. 131(1), pages 127-140, April.
  20. 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.
  21. 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 & Rainer, Helmut, 2013. "Beyond Ramsey: Gender-Based Taxation with Non-Cooperative Couples," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79877, Verein für Socialpolitik / German Economic Association.
  2. Hans Fehr & Manuel Kallweit & Fabian Kindermann, 2013. "Reforming Family Taxation in Germany - Labor Supply vs. Insurance Effects," CESifo Working Paper Series 4386, CESifo Group Munich.
  3. Michael Funke & Yu-Fu Chen & Aaron Mehrota, 2011. "Global warming and extreme events: Rethinking the timing and intensity of environment policy," Quantitative Macroeconomics Working Papers 21105, Hamburg University, Department of Economics.
  4. Volker Meier, 2013. "One-sided private provision of public goods with implicit Lindahl pricing," Journal of Economics, Springer, vol. 110(2), pages 181-186, October.
  5. 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.
  6. 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.
  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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