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Optimal Tax Treatment of the Family: Married Couples

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Author Info
Michael J. Boskin
Eytan Sheshinski

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Abstract

This paper examines the appropriate tax treatment of the family in a series of analytical models and numerical examples. For a population of taxpaying couples which differ in earning capacity, we derive the optimal tax rates for each potential earner. These rates depend crucially upon own and cross labor supply elasticities and the joint distribution of wage rates. Our results suggest that the current system of income splitting in the United States, under which husbands and wives face equal marginal tax rates, is non-optimal. Using results from recent econometric studies, and allowing for a sensitivity analysis, the optimal tax rates on secondary workers in the family are much lower than those on primary earners. Indeed, our best estimate is that the secondary earner would face tax rates only one-half as high as primary earners.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0368.

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Date of creation: Mar 1984
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Handle: RePEc:nbr:nberwo:0368

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  1. Herwig Immervoll & Henrik Jacobsen Kleven & Claus Thustrup Kreiner & Nicolaj Verdelin, 2008. "An Evaluation of the Tax-Transfer Treatment of Married Couples in European Countries," EPRU Working Paper Series 08-03, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics. [Downloadable!]
    Other versions:
  2. Henrik Jacobsen Kleven & Claus Thustrup Kreiner, 2004. "A Revised Efficiency Principle for the Taxation of Couples," EPRU Working Paper Series 04-09, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics. [Downloadable!]
  3. Edgar Cudmore & John Piggott & John Whalley, 2008. "Income Tax Design and the Desirability of Subsidies to Secondary Workers in a Household Model with Joint and Non-Joiont Time," University of Western Ontario, RBC Financial Group Economic Policy Research Institute Working Papers 20084, University of Western Ontario, RBC Financial Group Economic Policy Research Institute. [Downloadable!]
    Other versions:
  4. Alberto Alesina & Andrea Ichino & Loukas Karabarbounis, 2007. "Gender Based Taxation and the Division of Family Chores," IZA Discussion Papers 3233, Institute for the Study of Labor (IZA). [Downloadable!]
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  5. Bernhard Felderer & Klaus Ritzberger, 1995. "Family allowances as welfare improvements," Journal of Economics, Springer, vol. 61(1), pages 11-33, February. [Downloadable!] (restricted)
  6. Kleven, Henrik & Kreiner, Claus Thustrup & Saez, Emmanuel, 2006. "The Optimal Income Taxation of Couples," CEPR Discussion Papers 5978, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  7. Olivier Bargain, 2004. "Evaluation normative des politiques fiscales : du ménage à l'individu," DELTA Working Papers 2004-29, DELTA (Ecole normale supérieure). [Downloadable!]
  8. Peichl, Andreas & Fuest, Clemens & Bergs, Christian & Schaefer, Thilo, 2006. "Reformoptionen der Familienbesteuerung - Aufkommens-, Verteilungs- und Arbeitsangebotseffekte," FiFo-CPE Discussion Papers - Finanzwissenschaftliche Diskussionsbeiträge 06-8, University of Cologne, CPE - Cologne Center for Public Economics. [Downloadable!]
  9. Ernesto Villanueva, 2002. "Parental Altruism under Imperfect Information: Theory and Evidence," Economics Working Papers 650, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
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  10. 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. [Downloadable!]
  11. Helmuth Cremer & Jean-Marie Lozachmeur & Pierre Pestieau, 2007. "Income Taxation of Couples and the Tax Unit Choice," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  12. Bargain, Olivier, 2004. "Normative Evaluation of Tax Policies: From Households to Individuals," IZA Discussion Papers 1441, Institute for the Study of Labor (IZA). [Downloadable!]
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  13. Henrik Jacobsen Kleven & Claus Thustrup Kreiner, 2001. "On the Optimality of Joint Taxation with Household Production," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  14. Ruud de Mooij, 2007. "Reinventing the Dutch tax-benefit system," CPB Discussion Papers 88, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]
  15. Patricia Apps, 2009. "Tax Reform, Targeting and the Tax Burden on Women," CEPR Discussion Papers 609, Centre for Economic Policy Research, Research School of Social Sciences, Australian National University. [Downloadable!]
  16. Henrik Jacobsen Kleven & Claus Thustrup Kreiner, 2004. "Optimal Taxation of Married Couples with Household Production," EPRU Working Paper Series 04-10, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics. [Downloadable!]
  17. Martin Feldstein & Daniel Feenberg, 1995. "The Taxation of Two Earner Families," NBER Working Papers 5155, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  18. Louis Kaplow, 1996. "Optimal Distribution and Taxation of the Family," NBER Working Papers 4189, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  19. Matthias Wrede, 2000. "Income Splitting -- is it Good for Both Partners in the Marriage?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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