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Love and Taxes - and Matching Institutions

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Author Info
Konrad, Kai A
Lommerud, Kjell Erik

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Abstract

We study a setting with search frictions in the marriage market and with incomplete contracting inside the family. Everyone prefers a partner that has a high income and is a perfect emotional match, but compromises must often be struck. A high-income earner may abstain from marrying a low-income earner even though they would be a perfect match emotionally, because he may dislike the implicit income redistribution implied by marriage. Redistributive income taxation may ease this problem. Income matching institutions that secure that people from the same income groups largely meet each other can substitute for redistribution, so that optimal redistribution is reduced. We also introduce a divorce option. Redistributive taxation is shown both to further and stabilize marriage.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6703.

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Date of creation: Feb 2008
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Handle: RePEc:cpr:ceprdp:6703

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Related research
Keywords: assortative mating; divorce; emotional rents; incomplete contracts; love; marriage; optimal taxation;

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Find related papers by JEL classification:
D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
J12 - Labor and Demographic Economics - - Demographic Economics - - - Marriage; Marital Dissolution; Family Structure

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    Other versions:
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  10. Corneo, Giacomo, 2002. "The efficient side of progressive income taxation," European Economic Review, Elsevier, vol. 46(7), pages 1359-1368, July. [Downloadable!] (restricted)
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    Other versions:
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    Other versions:
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    Other versions:
  15. 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. [Downloadable!] (restricted)
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    Other versions:
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