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Income Taxation and Marital Decisions

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  • Hector Chade

    (Arizona State University)

  • Gustavo Ventura

    (University of Western Ontario)

Abstract

We develop an equilibrium matching model with search frictions in order to analyze the effects that differential tax treatment of married and single individuals have on marriage formation and dissolution. Our main results are the following: (i) although an increase in the ‘marriage tax’ reduces the number of marriages, there is a two-sided search e¤ect that can substantially mitigate its impact on marriage formation and dissolution; (ii) an increase in the ‘marriage tax’ need not make both men and women more reluctant to get married; (iii) the e¤ects of a given change in the differential taxation on marital behavior depend on whether it is implemented via changes in the tax rates that singles face or in the tax rates that married people face; (iv) we compute an example to calculate the size of the two-sided search e¤ect and …nd that large changes in the marriage tax penalty can lead to small changes in the number of marriages and divorces. The example also reveals that the number of divorces can actually increase with a reduction in the ‘marriage tax’.

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File URL: ftp://webacademicos.udesa.edu.ar/pub/econ/doc35.pdf
File Function: First version, 2001
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Bibliographic Info

Paper provided by Universidad de San Andres, Departamento de Economia in its series Working Papers with number 35.

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Length: 30 pages
Date of creation: Jun 2001
Date of revision: Jun 2001
Handle: RePEc:sad:wpaper:35

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Keywords: Marriage Penalty; Marriage Tax; Two-Sided Search; Matching;

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References

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  1. Lones Smith, 2006. "The Marriage Model with Search Frictions," Journal of Political Economy, University of Chicago Press, vol. 114(6), pages 1124-1146, December.
  2. BLOCH, Francis & RYDER, Harl, 1994. "Two-Sided Search, Marriages and Matchmakers," CORE Discussion Papers 1994028, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. An, Mark Yuying, 1995. "Logconcavity versus Logconvexity: A Complete Characterization," Working Papers 95-03, Duke University, Department of Economics.
  4. Mark Bagnoli & Ted Bergstrom, 2005. "Log-concave probability and its applications," Economic Theory, Springer, vol. 26(2), pages 445-469, 08.
  5. Burdett, Ken & Coles, Melvyn G, 1997. "Marriage and Class," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 141-68, February.
  6. Shimer, R. & Smith, L., 1997. "Assortative Matching and Search," Working papers 97-2a, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Jan Eeckhout, 1996. "Bilateral Search and Vertical Heterogeneity," STICERD - Theoretical Economics Paper Series /1996/315, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  8. Chade, Hector, 2001. "Two-sided search and perfect segregation with fixed search costs," Mathematical Social Sciences, Elsevier, vol. 42(1), pages 31-51, July.
  9. Kenneth Burdett & Randall Wright, 1994. "Two-sided search," Staff Report 169, Federal Reserve Bank of Minneapolis.
  10. Burdett, Kenneth & Coles, Melvyn G, 1999. "Long-Term Partnership Formation: Marriage and Employment," Economic Journal, Royal Economic Society, vol. 109(456), pages F307-34, June.
  11. Alm, James & Whittington, Leslie A., 1995. "Does the Income Tax Affect Marital Decisions?," National Tax Journal, National Tax Association, vol. 48(4), pages 565-72, December.
  12. Becker, Gary S, 1973. "A Theory of Marriage: Part I," Journal of Political Economy, University of Chicago Press, vol. 81(4), pages 813-46, July-Aug..
  13. Sjoquist, David L. & Walker, Mary Beth, 1995. "The Marriage Tax and the Rate and Timing of Marriage," National Tax Journal, National Tax Association, vol. 48(4), pages 547-58, December.
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Cited by:
  1. repec:hal:wpaper:halshs-00628642 is not listed on IDEAS
  2. Leturcq, Marion, 2012. "Will you civil union me? Taxation and civil unions in France," Journal of Public Economics, Elsevier, vol. 96(5), pages 541-552.
  3. repec:hal:wpaper:halshs-00566846 is not listed on IDEAS
  4. Shannon N. Seitz, 2002. "Accounting for Racial Differences in Marriage and Employment," Working Papers 1009, Queen's University, Department of Economics.
  5. Nancy R. Burstein, 2007. "Economic influences on marriage and divorce," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 26(2), pages 387-429.
  6. John Knowles, 2005. "Why are Married Men Working So Much?," PIER Working Paper Archive 05-031, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.

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