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Pigou meets Ramsey: Gender-based taxation with non-cooperative couples

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  • Meier, Volker
  • Rainer, Helmut

Abstract

This paper explores the implications of gender-based income taxation in a non-cooperative model of household behavior. In a first step, we show how gender-based taxes can act as Pigou taxes and correct the externality induced by a non-cooperative household equilibrium. We find that the first-best Pigou tax rules are solely determined by spouses׳ relative marginal rates of substitution between the public household good and private consumption. Breaking down this general rule into the primitives of the model, the spouse with a comparative advantage in home production should be taxed at a higher rate. In a second step, we embed our non-cooperative framework in a standard second-best planning problem in which taxes serve a revenue-raising purpose. In this case, the optimal structure of differential taxation by gender is partly determined by a Ramsey-type inverse elasticity rule and partly by a Pigouvian tax element. We show that these two forces work in opposite directions in determining whether men or women should be taxed at a higher rate, and that either one could be dominant, depending on the revenue-raising position of the government. This result is robust to the introduction of two groups of households that differ in their mode of decision-making, which can be either cooperative or non-cooperative.

Suggested Citation

  • Meier, Volker & Rainer, Helmut, 2015. "Pigou meets Ramsey: Gender-based taxation with non-cooperative couples," European Economic Review, Elsevier, vol. 77(C), pages 28-46.
  • Handle: RePEc:eee:eecrev:v:77:y:2015:i:c:p:28-46
    DOI: 10.1016/j.euroecorev.2015.03.010
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    1. Meier, Volker & Rainer, Helmut, 2012. "On the optimality of joint taxation for noncooperative couples," Labour Economics, Elsevier, vol. 19(4), pages 633-641.
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    Cited by:

    1. repec:eee:jeborg:v:148:y:2018:i:c:p:199-225 is not listed on IDEAS
    2. Gerhard Glomm & Volker Meier, 2016. "Modes of Child Care," CESifo Working Paper Series 6287, CESifo Group Munich.
    3. Sebastian Benz & Mario Larch & Markus Zimmer, 2014. "The structure of the German economy," Applied Economics, Taylor & Francis Journals, vol. 46(27), pages 3274-3283, September.
    4. Dan Anderberg & Helmut Rainer & Kerstin Roeder, 2016. "Family-Specific Investments and Divorce: A Theory of Dynamically Inconsistent Household Behavior," CESifo Working Paper Series 5996, CESifo Group Munich.

    More about this item

    Keywords

    Gender-based taxation; Non-cooperative family decision-making;

    JEL classification:

    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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