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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 the properties of optimal piecewise linear tax systems for two-earner households, based on joint and individual incomes respectively. A key contribution is the analysis of the interaction between second earner wage differences, variation in the price of child care and domestic productivity differences as determinants of across-household heterogeneity in second earner labour supply, and of the resulting relationship between household income and the wellbeing of household members. 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.

Suggested Citation

  • Patricia Apps & Ray Rees, 2014. "Optimal Taxation, Child Care and Models of the Household," CESifo Working Paper Series 4578, CESifo.
    • Handle: RePEc:ces:ceswps:_4578
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    References listed on IDEAS

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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;European Society for Population Economics, vol. 25(2), pages 763-778, January.
    2. Patricia F. Apps & Ray Rees, 1997. "The Optimal Taxation of Couples," CESifo Working Paper Series 145, CESifo.
    3. Henrik Jacobsen Kleven & Claus Thustrup Kreiner & Emmanuel Saez, 2009. "The Optimal Income Taxation of Couples," Econometrica, Econometric Society, vol. 77(2), pages 537-560, March.
    4. 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.
    5. Petter Lundborg; & Anton Nilsson; & Dan-Olof Rooth, 2012. "Parental education and offspring outcomes: evidence from the Swedish compulsory schooling reform," Health, Econometrics and Data Group (HEDG) Working Papers 12/12, HEDG, c/o Department of Economics, University of York.
    6. Raj Chetty, 2009. "Sufficient Statistics for Welfare Analysis: A Bridge Between Structural and Reduced-Form Methods," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 451-488, May.
    7. Apps,Patricia & Rees,Ray, 2009. "Public Economics and the Household," Cambridge Books, Cambridge University Press, number 9780521716284.
    8. 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.
    9. Schroyen, Fred, 2003. "Redistributive taxation and the household: the case of individual filings," Journal of Public Economics, Elsevier, vol. 87(11), pages 2527-2547, October.
    10. Slemrod, Joel & Yitzhaki, Shlomo & Mayshar, Joram & Lundholm, Michael, 1994. "The optimal two-bracket linear income tax," Journal of Public Economics, Elsevier, vol. 53(2), pages 269-290, February.
    11. Craig Brett, 2007. "Optimal nonlinear taxes for families," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 14(3), pages 225-261, June.
    12. Patricia Apps & Ngo Long & Ray Rees, 2014. "Optimal Piecewise Linear Income Taxation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 16(4), pages 523-545, August.
    13. 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.
    14. Martin Feldstein & James M. Poterba, 1996. "Empirical Foundations of Household Taxation," NBER Books, National Bureau of Economic Research, Inc, number feld96-1, July.
    15. Almond, Douglas & Currie, Janet, 2011. "Human Capital Development before Age Five," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 15, pages 1315-1486, Elsevier.
    16. 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.
    17. Apps, Patricia F. & Rees, Ray, 1988. "Taxation and the household," Journal of Public Economics, Elsevier, vol. 35(3), pages 355-369, April.
    18. Eytan Sheshinski, 1972. "The Optimal Linear Income-tax," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 39(3), pages 297-302.
    19. Sandmo, Agnar, 1990. "Tax Distortions and Household Production," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 78-90, January.
    20. Sheshinski, Eytan, 1989. "Note on the shape of the optimum income tax schedule," Journal of Public Economics, Elsevier, vol. 40(2), pages 201-215, November.
    21. Efraim Sadka, 1976. "On Income Distribution, Incentive Effects and Optimal Income Taxation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 43(2), pages 261-267.
    22. Dahlby, Bev, 1998. "Progressive taxation and the social marginal cost of public funds," Journal of Public Economics, Elsevier, vol. 67(1), pages 105-122, January.
    23. 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, vol. 95(11), pages 1485-1500.
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    Cited by:

    1. Apps, Patricia & Rees, Ray, 2012. "Capital Income Taxation and the Mirrlees Review," IZA Discussion Papers 6615, Institute of Labor Economics (IZA).
    2. Keane, Michael P., 2022. "Recent research on labor supply: Implications for tax and transfer policy," Labour Economics, Elsevier, vol. 77(C).
    3. Andrienko, Yuri & Apps, Patricia & Rees, Ray, 2014. "Optimal Taxation, Inequality and Top Incomes," IZA Discussion Papers 8275, Institute of Labor Economics (IZA).
    4. Jaume, David & Willén, Alexander, 2021. "The effect of teacher strikes on parents," Journal of Development Economics, Elsevier, vol. 152(C).

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    More about this item

    Keywords

    optimal taxation; labour supply; time use; child care; household production; inequality;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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