Non-minimization of source taxes on labor income: empirical evidence from Germany
The present paper offers empirical evidence for pareto-inefficiencies within German households. Using a large dataset from the German income tax statistic and conducting microsimulation analysis it refutes the assumption of pareto-efficiencies underlying the unitary as well as cooperative bargaining models of the household. The analysis is based on the unique features of the German source tax on wage income which give married couples some degree of freedom when determining their total tax liability and its distribution among spouses. We interpret distributive choices that do not minimize total tax withholding as the outcome of ineffiencient intra-family bargaining. Our result supports the findings of previous empirical work for developing countries and call for a reconsideration of the dominant models on intrahousehold-decision-making.
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