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Capital Taxes, Labor Taxes and the Household

Author

Listed:
  • Rigas OIKONOMOU

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

  • Christian SIEGEL

    (University of Exeter)

Abstract

We study the impact of capital and labor taxation in an economy where couples bargain over the intrahousehold allocation under limited commitment. In this framework more wealth improves commitment and gives rise to insurance gains within the household. Our theory motivates these gains by the empirical observation that wealth, in contrast to labor income, is a commonly held resource within households. Based on this observation we study whether eliminating capital taxes from the economy, and raising labor taxes to balance the government’s budget, may generate welfare gains to married households. We illustrate that the quantitative effects from this reform are rather small. We attribute the small effects to the life cycle pattern of wealth accumulation and to the impact of labor income taxes on household risk sharing: In particular, we show that higher labor taxes may make the limited commitment friction more severe, even though they may make the distribution of labor income more equitable within the household.

Suggested Citation

  • Rigas OIKONOMOU & Christian SIEGEL, 2015. "Capital Taxes, Labor Taxes and the Household," JODE - Journal of Demographic Economics, Cambridge University Press, vol. 81(3), pages 217-260, September.
  • Handle: RePEc:ctl:louvde:v:81:y:2015:i:3:p:217-260
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    File URL: http://dx.doi.org/10.1017/dem.2015.7
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    References listed on IDEAS

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    More about this item

    Keywords

    Life cycles models; Incomplete financial markets; Tax reform; Intrahousehold allocations;

    JEL classification:

    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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