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A Switch from Joint to Individual Taxation Is Welfare Improving

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  • André Decoster
  • Peter Haan

Abstract

In this paper we empirically derive the welfare effects of a shift from joint taxation with full income splitting to a revenue neutral system of individual taxation in Germany. For the empirical welfare evaluation we estimate the preference heterogeneity in the population and use normative welfare concepts proposed in Fleurbaey (2006) to solve the difficulties of comparison between, and aggregation of heterogeneous individuals and households. We show that, irrespective of the individual welfare measure we use, individual taxation would on average increase individual welfare. Moreover, as far as the aggregation is concerned, we show that any social planner, ranging from a utilitarian to a Rawlsian one, would come to the same conclusion: a policy change which replaces joint taxation with full splitting by individual taxation, would be welfare improving.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.389950.de/dp1175.pdf
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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1175.

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Length: 19 p.
Date of creation: 2011
Date of revision:
Handle: RePEc:diw:diwwpp:dp1175

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Keywords: Taxation of couples; welfare measures; labour supply; preference heterogeneity;

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References

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  1. Gert G. Wagner & Joachim R. Frick & Jürgen Schupp, 2007. "The German Socio-Economic Panel Study (SOEP): Scope, Evolution and Enhancements," SOEPpapers on Multidisciplinary Panel Data Research 1, DIW Berlin, The German Socio-Economic Panel (SOEP).
  2. André Decoster & Peter Haan, 2010. "Empirical Welfare Analysis in Random Utility Models of Labour Supply," Discussion Papers of DIW Berlin 1074, DIW Berlin, German Institute for Economic Research.
  3. Aaberge, Rolf & Colombino, Ugo & Strøm, Steinar, 2003. "Do More Equal Slices Shrink the Cake? An Empirical Investigation of Tax-Transfer Reform Proposals in Italy," Memorandum 37/2003, Oslo University, Department of Economics.
  4. Aaberge, Rolf & Dagsvik, John K & Strom, Steinar, 1995. " Labor Supply Responses and Welfare Effects of Tax Reforms," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 635-59, December.
  5. Sara LaLumia, 2006. "The Effects of Joint Taxation of Married Couples on Labor Supply and Non-wage Income," Working Papers 28, Department of Economics, College of William and Mary.
  6. Bargain, Olivier & Caliendo, Marco & Haan, Peter & Orsini, Kristian, 2006. "'Making Work Pay' in a Rationed Labour Market," IZA Discussion Papers 2033, Institute for the Study of Labor (IZA).
  7. 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.
  8. Michael J. Boskin & Eytan Sheshinski, 1979. "Optimal Tax Treatment of the Family: Married Couples," NBER Working Papers 0368, National Bureau of Economic Research, Inc.
  9. John Creedy & Guyonne Kalb, 2005. "Discrete Hours Labour Supply Modelling: Specification, Estimation and Simulation," Journal of Economic Surveys, Wiley Blackwell, vol. 19(5), pages 697-734, December.
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Cited by:
  1. 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).
  2. Holger Bonin & Anita Fichtl & Helmut Rainer & C. Katharina Spieß & Holger Stichnoth & Katharina Wrohlich, 2013. "Lehren für die Familienpolitik – Zentrale Resultate der Gesamtevaluation familienbezogener Leistungen," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 66(18), pages 22-30, October.

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