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The Impact of Separate Taxation on the Intra-Household Allocation of Assets: Evidence from the UK

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  • Melvin Stephens Jr.
  • Jennifer Ward-Batts

Abstract

The income tax system in the United Kingdom moved from joint to independent taxation of husbands' and wives' income in 1990. One interesting aspect of independent taxation is the ability for households to choose the division of household assets between the two spouses. This tax reform therefore creates an opportunity for households to engage in a form of tax avoidance by shifting their investment income to the spouse with the lower marginal tax rate. We use Family Expenditure Survey data to examine the impact of this tax reform on the magnitude of investment income shifting between spouses with different marginal tax rates. We find a sizeable shift in the share and incidence of asset income claimed by wives, who typically have lower marginal tax rates, as well as in the incidence of the wife claiming all the household asset income, indicating that households responded to this policy change by reallocating asset ownership.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8380.

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Date of creation: Jul 2001
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Handle: RePEc:nbr:nberwo:8380

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Cited by:
  1. Alstadsæter, Annette & Jacob, Martin, 2013. "Who participates in tax avoidance?," arqus Discussion Papers in Quantitative Tax Research 148, arqus - Arbeitskreis Quantitative Steuerlehre.
  2. LaLumia, Sara, 2008. "The effects of joint taxation of married couples on labor supply and non-wage income," Journal of Public Economics, Elsevier, vol. 92(7), pages 1698-1719, July.
  3. Onji, Kazuki, 2009. "The response of firms to eligibility thresholds: Evidence from the Japanese value-added tax," Journal of Public Economics, Elsevier, vol. 93(5-6), pages 766-775, June.
  4. Sule Alan & Kadir Atalay & Thomas Crossley & Sung-Hee Jeon, 2009. "New evidence on taxes and portfolio choice," IFS Working Papers W09/11, Institute for Fiscal Studies.
  5. Rydqvist, Kristian & Schwartz, Steven T. & Spizman, Joshua D., 2014. "The tax benefit of income smoothing," Journal of Banking & Finance, Elsevier, vol. 38(C), pages 78-88.
  6. Sánchez-Mangas, Rocio & Sánchez-Marcos, Virginia, 2008. "Balancing family and work: The effect of cash benefits for working mothers," Labour Economics, Elsevier, vol. 15(6), pages 1127-1142, December.
  7. Klara Kaliskova, 2013. "Family Taxation and the Female Labor Supply: Evidence from the Czech Republic," CERGE-EI Working Papers wp496, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  8. Rydqvist, Kristian & Schwartz, Steven & Spizman, Joshua, 2011. "The Tax Benefit of Income Smoothing," CEPR Discussion Papers 8425, C.E.P.R. Discussion Papers.
  9. Aronsson, Thomas & Daunfeldt, Sven-Olov & Wikström, Magnus, 2001. "Intra-household Tax Avoidance: An Application to Swedish Household Data," UmeÃ¥ Economic Studies 572, Umeå University, Department of Economics.
  10. Gracia, Louise & Oats, Lynne, 2012. "Boundary work and tax regulation: A Bourdieusian view," Accounting, Organizations and Society, Elsevier, vol. 37(5), pages 304-321.

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