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On the optimality of joint taxation for noncooperative couples

  • Meier, Volker
  • Rainer, Helmut

We present a noncooperative model of a family's time allocation between work and a home-produced public good, and examine whether the income tax should apply to couples or individuals. While tax-induced labor supply distortions lead to overprovision of the public good, spouses' failure to internalize the collective effect of their choices points towards underprovision. A large parameter range exists for which a move from individual to joint taxation improves the welfare of both spouses. The source of Pareto-improvement consists in moving the level of the public good closer to its first-best, while an adjustment of intra-family transfers compensates the secondary earner for the increased tax load.

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Article provided by Elsevier in its journal Labour Economics.

Volume (Year): 19 (2012)
Issue (Month): 4 ()
Pages: 633-641

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Handle: RePEc:eee:labeco:v:19:y:2012:i:4:p:633-641
Contact details of provider: Web page: http://www.elsevier.com/locate/labeco

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  1. Helmut Rainer, 2003. "Should We Write Prenuptial Contracts?," Economics Discussion Papers 572, University of Essex, Department of Economics.
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  9. Volker Meier & Matthias Wrede, 2008. "Reducing the Excess Burden of Subsidizing the Stork: Joint Taxation, Individual Taxation, and Family Tax Splitting," CESifo Working Paper Series 2470, CESifo Group Munich.
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  13. Patricia F. Apps & Ray Rees, 1999. "Individual versus Joint Taxation in Models with Household Production," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 393-403, April.
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  17. Zhiqi Chen & Frances Woolley, 1999. "A Cournot-Nash Model of Family Decision Making," Carleton Economic Papers 99-13, Carleton University, Department of Economics, revised Oct 2001.
  18. Rainer, Helmut, 2007. "Should we write prenuptial contracts?," Munich Reprints in Economics 19819, University of Munich, Department of Economics.
  19. Dan Anderberg, 2007. "Inefficient households and the mix of government spending," Public Choice, Springer, vol. 131(1), pages 127-140, April.
  20. John Piggott & John Whalley, 1994. "The Tax Unit and Household Production," NBER Working Papers 4820, National Bureau of Economic Research, Inc.
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  22. Imran Rasul, 2006. "The Economics of Child Custody," Economica, London School of Economics and Political Science, vol. 73(289), pages 1-25, 02.
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