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An Evaluation of the Tax-Transfer Treatment of Married Couples in European Countries

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  • Herwig Immervoll
  • Henrik Jacobsen Kleven
  • Claus Thustrup Kreiner
  • Nicolaj Verdelin

Abstract

This paper presents an evaluation of the tax-transfer treatment of married couples in 15 EU countries using the EUROMOD microsimulation model. First, we show that many tax-transfer schemes in Europe feature negative jointness defined as a situation where the tax rate on one person depends negatively on the earnings of the spouse. This stands in contrast to the previous literature on this question, which has focused on a specific form of positive jointness. The presence of negative jointness is driven by family-based and means-tested transfer programs combined with tax systems that usually feature very little jointness. Second, we consider the labour supply distortion on secondary earners relative to primary earners implied by the current tax-transfer systems, and study the welfare effects of small reforms that change the relative taxation of spouses. By adopting a small-reform methodology, it is possible to set out a simple analysis based on more realistic labour supply models than those considered in the existing literature. We present microsimulations showing that simple revenue-neutral reforms that lower the tax burden on secondary earners are associated with substantial welfare gains in most countries. Finally, we consider the tax-transfer implications of marriage and estimate the so-called marriage penalty. For most countries, we find large marriage penalties at the bottom of the distribution driven primarily by features of the transfer system. Ce document présente une évaluation des régimes d’imposition et de transfert des couples mariés dans 15 pays de l’UE à l’aide du micro-modèle de simulation EUROMOD. Nous montrons tout d’abord qu’en Europe, de nombreux régimes d’imposition et de transfert font ressortir des caractéristiques négatives résultant de l’imposition conjointe, dans la mesure où le taux d’imposition appliqué à un contribuable dépend des gains du conjoint, ce qui est désavantageux pour lui. Cette observation va à l’encontre des études consacrées précédemment à cette question, qui faisaient ressortir les aspects positifs de l’imposition conjointe. Les effets négatifs de l’imposition conjointe des revenus tiennent au fait que les programmes de transfert sont modulés en fonction des charges de famille et subordonnées à des critères de ressources, conjugués aux effets de régimes fiscaux qui, d’ordinaire font très peu de place à l’imposition conjointe. Deuxièmement, nous considérons l’effet de distorsion exercé sur l’offre de main-d’oeuvre dû au fait que les seconds apporteurs de revenu sont pénalisés par rapport aux premiers apporteurs de revenu par les systèmes actuels d’imposition-de transfert, et étudions les effets sur le bien-être de réformes de portée restreinte modifiant la fiscalité relative applicable aux conjoints. L’adoption d’une méthode préconisant une réforme de portée restreinte, permet de faire apparaître une analyse simple, fondée sur des modèles plus réalistes de l’offre de main-d’oeuvre que ceux qui sont pris en compte dans les travaux actuels. Nous présentons des micro-simulations montrant que de simples réformes, neutres en termes de recettes, qui permettent d’abaisser le poids de la fiscalité applicable aux seconds apporteurs de revenu, entraînent des hausses substantielles de bien-être dans la plupart des pays. Enfin, nous considérons les répercussions du mariage sur le régime d’imposition-de transfert et procédons à l’estimation de ce que l’on appelle la pénalisation du mariage. Dans la plupart des pays, nous observons que cette pénalisation est forte au bas de l’échelle de distribution des revenus et s’explique essentiellement par des caractéristiques du système de transfert.

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Bibliographic Info

Paper provided by OECD Publishing in its series OECD Social, Employment and Migration Working Papers with number 76.

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Date of creation: 23 Jan 2009
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Handle: RePEc:oec:elsaab:76-en

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References

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  1. Armstrong, Mark & Rochet, Jean-Charles, 1999. "Multi-dimensional screening:: A user's guide," European Economic Review, Elsevier, vol. 43(4-6), pages 959-979, April.
  2. Herwig Immervoll & Henrik Jacobsen Kleven & Claus Thustrup Kreiner & Emmanuel Saez, 2005. "Welfare Reform in European Countries: A Microsimulation Analysis," OECD Social, Employment and Migration Working Papers 28, OECD Publishing.
  3. Herwig Immervoll & Cathal O’Donoghue, 2003. "Employment Transitions in 13 European Countries. Levels, Distributions and Determining Factors of Net Replacement Rates," CESifo Working Paper Series 1091, CESifo Group Munich.
  4. Eissa, Nada & Hoynes, Hilary Williamson, 2004. "Taxes and the labor market participation of married couples: the earned income tax credit," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 1931-1958, August.
  5. Blundell, Richard & Macurdy, Thomas, 1999. "Labor supply: A review of alternative approaches," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 27, pages 1559-1695 Elsevier.
  6. Henrik Jacobsen Kleven & Claus Thustrup Kreiner & Emmanuel Saez, 2007. "The Optimal Income Taxation of Couples as a Multi-Dimensional Screening Problem," CESifo Working Paper Series 2092, CESifo Group Munich.
  7. Helmuth Cremer & Jean-Marie Lozachmeur & Pierre Pestieau, 2007. "Income Taxation of Couples and the Tax Unit Choice," CESifo Working Paper Series 2005, CESifo Group Munich.
  8. Emmanuel Saez, 2000. "Optimal Income Transfer Programs: Intensive Versus Extensive Labor Supply Responses," NBER Working Papers 7708, National Bureau of Economic Research, Inc.
  9. Hilary Williamson Hoynes, 1995. "Does Welfare Play Any Role in Female Headship Decisions?," NBER Working Papers 5149, National Bureau of Economic Research, Inc.
  10. Craig Brett, 2007. "Optimal nonlinear taxes for families," International Tax and Public Finance, Springer, vol. 14(3), pages 225-261, June.
  11. Feenberg, Daniel R. & Rosen, Harvey S., 1995. "Recent Developments in the Marriage Tax," National Tax Journal, National Tax Association, vol. 48(1), pages 91-101, March Cit.
  12. Boskin, Michael J. & Sheshinski, Eytan, 1983. "Optimal tax treatment of the family: Married couples," Journal of Public Economics, Elsevier, vol. 20(3), pages 281-297, April.
  13. Marianne Bitler & Jonah Gelbach & Hilary Hoynes & Madeline Zavodny, 2004. "The impact of welfare reform on marriage and divorce," Demography, Springer, vol. 41(2), pages 213-236, May.
  14. Nada Eissa, 1995. "Taxation and Labor Supply of Married Women: The Tax Reform Act of 1986 as a Natural Experiment," NBER Working Papers 5023, National Bureau of Economic Research, Inc.
  15. Dickert-Conlin, Stacy & Houser, Scott, 1998. "Taxes and Transfers: A New Look at the Marriage Penalty," National Tax Journal, National Tax Association, vol. 51(n. 2), pages 175-217, June Cita.
  16. Alm, James & Whittington, Leslie A, 1999. "For Love or Money? The Impact of Income Taxes on Marriage," Economica, London School of Economics and Political Science, vol. 66(263), pages 297-316, August.
  17. Herwig Immervoll, 2004. "Average and Marginal Effective Tax Rates Facing Workers in the EU: A Micro-Level Analysis of Levels, Distributions and Driving Factors," OECD Social, Employment and Migration Working Papers 19, OECD Publishing.
  18. Hilary Williamson Hoynes, 1996. "Work, Welfare, and Family Structure: What Have We Learned?," NBER Working Papers 5644, National Bureau of Economic Research, Inc.
  19. Richard W. Blundell, 1995. "The Impact of Taxation on Labour Force Participation and Labour Supply," OECD Jobs Study Working Papers 8, OECD Publishing.
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Cited by:
  1. Olivier Bargain & Kristian Orsini & Andreas Peichl, 2011. "Labor Supply Elasticities in Europe and the US," Working Papers 201114, School Of Economics, University College Dublin.
  2. European Commission, 2011. "Tax Reforms in EU Member States 2011: tax policy challenges for economic growth and fiscal sustainability," Taxation Papers 28, Directorate General Taxation and Customs Union, European Commission.
  3. Olivier Bargain & Mathias Dolls & Dirk Neumann & Sebastian Siegloch & Andreas Peichl, 2011. "Tax-Benefit Systems in Europe and the US: Between Equity and Efficiency," Working Papers 201101, Geary Institute, University College Dublin.
  4. Eichhorst, Werner & Thode, Eric, 2010. "Report No. 30: Vereinbarkeit von Familie und Beruf 2010," IZA Research Reports 30, Institute for the Study of Labor (IZA).
  5. Fahn, Matthias, 2011. "Three Essays on Commitment and Information Problems," Munich Dissertations in Economics 13750, University of Munich, Department of Economics.
  6. Immervoll, Herwig & Kleven, Henrik Jacobsen & Kreiner, Claus Thustrup & Verdelin, Nicolaj, 2011. "Optimal tax and transfer programs for couples with extensive labor supply responses," Journal of Public Economics, Elsevier, vol. 95(11), pages 1485-1500.

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