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On the optimality of joint taxation for noncooperative couples

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  • Meier, Volker
  • Rainer, Helmut

Abstract

We present a noncooperative 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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Bibliographic Info

Paper provided by University of Munich, Department of Economics in its series Munich Reprints in Economics with number 19177.

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Date of creation: 2012
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Publication status: Published in Labour Economics 4 19(2012): pp. 633-641
Handle: RePEc:lmu:muenar:19177

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  1. 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.
  2. Apps, Patricia & Rees, Ray, 2007. "The Taxation of Couples," IZA Discussion Papers 2910, Institute for the Study of Labor (IZA).
  3. 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.
  4. Kleven, Henrik & Kreiner, Claus Thustrup & Saez, Emmanuel, 2006. "The Optimal Income Taxation of Couples," CEPR Discussion Papers 5978, C.E.P.R. Discussion Papers.
  5. Patricia Apps & Ray Rees, 2011. "Relational Contracts, Taxation and the Household," CESifo Economic Studies, CESifo, vol. 57(2), pages 245-258, June.
  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. 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.
  8. Helmut Rainer, 2005. "Should We Write Prenuptial Contracts?," Discussion Paper Series, Department of Economics 200514, Department of Economics, University of St. Andrews.
  9. Dan Anderberg, 2007. "Inefficient households and the mix of government spending," Public Choice, Springer, vol. 131(1), pages 127-140, April.
  10. 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.
  11. Michael J. Boskin & Eytan Sheshinski, 1979. "Optimal Tax Treatment of the Family: Married Couples," NBER Working Papers 0368, National Bureau of Economic Research, Inc.
  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. Imran Rasul, 2006. "The Economics of Child Custody," Economica, London School of Economics and Political Science, vol. 73(289), pages 1-25, 02.
  14. 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.
  15. 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.
  16. Apps,Patricia & Rees,Ray, 2009. "Public Economics and the Household," Cambridge Books, Cambridge University Press, number 9780521887878, 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. 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.
  19. 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.
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Cited by:
  1. 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.
  2. 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.
  3. 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.
  4. 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).
  5. 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.
  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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