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Income Taxation and Marital Decisions

Author

Listed:
  • Hector Chade

    (Arizona State University)

  • Gustavo Ventura

    (Pennsylvania State University)

Abstract

Differential tax treatment of married and single people is a key feature of the tax law in the US and other countries. We develop a matching model with search frictions to analyze the effects these tax provisions 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 effect 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 marry; (iii) the effects 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, as well as on the ability of the spouses to transfer utility between them; (iv) a computed example reveals that large changes in the marriage tax penalty can lead to small changes in the number of marriages and divorces, and that the number of divorces can increase with a reduction in the 'marriage tax.' (Copyright: Elsevier)

Suggested Citation

  • Hector Chade & Gustavo Ventura, 2005. "Income Taxation and Marital Decisions," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(3), pages 565-599, Juky.
  • Handle: RePEc:red:issued:v:8:y:2005:i:3:p:565-599
    DOI: 10.1016/j.red.2005.01.008
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    References listed on IDEAS

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    1. Robert Shimer & Lones Smith, 2000. "Assortative Matching and Search," Econometrica, Econometric Society, vol. 68(2), pages 343-370, March.
    2. Mark Bagnoli & Ted Bergstrom, 2005. "Log-concave probability and its applications," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 26(2), pages 445-469, August.
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    4. Bloch, Francis & Ryder, Harl, 2000. "Two-Sided Search, Marriages, and Matchmakers," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(1), pages 93-115, February.
    5. Chade, Hector, 2006. "Matching with noise and the acceptance curse," Journal of Economic Theory, Elsevier, vol. 129(1), pages 81-113, July.
    6. Lones Smith, 2006. "The Marriage Model with Search Frictions," Journal of Political Economy, University of Chicago Press, vol. 114(6), pages 1124-1146, December.
    7. Ken Burdett & Randall Wright, 1998. "Two-Sided Search with Nontransferable Utility," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(1), pages 220-245, January.
    8. An, Mark Yuying, 1998. "Logconcavity versus Logconvexity: A Complete Characterization," Journal of Economic Theory, Elsevier, vol. 80(2), pages 350-369, June.
    9. Ken Burdett & Melvyn G. Coles, 1997. "Marriage and Class," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 141-168.
    10. Burdett, Kenneth & Coles, Melvyn G, 1999. "Long-Term Partnership Formation: Marriage and Employment," Economic Journal, Royal Economic Society, vol. 109(456), pages 307-334, June.
    11. Becker, Gary S, 1973. "A Theory of Marriage: Part I," Journal of Political Economy, University of Chicago Press, vol. 81(4), pages 813-846, July-Aug..
    12. 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.
    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.
    14. Chade, Hector, 2001. "Two-sided search and perfect segregation with fixed search costs," Mathematical Social Sciences, Elsevier, vol. 42(1), pages 31-51, July.
    15. Sjoquist, David L. & Walker, Mary Beth, 1995. "The Marriage Tax and the Rate and Timing of Marriage," National Tax Journal, National Tax Association;National Tax Journal, vol. 48(4), pages 547-558, December.
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    17. Hector Chade, "undated". "Search, Heterogeneity, and Noisy Observable Types," Working Papers 2133485, Department of Economics, W. P. Carey School of Business, Arizona State University.
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    Citations

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    Cited by:

    1. Doepke, M. & Tertilt, M., 2016. "Families in Macroeconomics," Handbook of Macroeconomics, Elsevier.
    2. Ek Susanne & Holmlund Bertil, 2010. "Family Job Search, Wage Bargaining, and Optimal Unemployment Insurance," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-27, May.
    3. repec:oup:restud:v:85:y:2018:i:3:p:1543-1576. is not listed on IDEAS
    4. 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.
    5. Alexander Bick & Nicola Fuchs-Schündeln, 2018. "Taxation and Labour Supply of Married Couples across Countries: A Macroeconomic Analysis," Review of Economic Studies, Oxford University Press, vol. 85(3), pages 1543-1576.
    6. Audrey Light & Yoshiaki Omori, 2009. "Economic Incentives and Family Formation," Working Papers 09-08, Ohio State University, Department of Economics.
    7. Shannon Seitz, 2009. "Accounting for Racial Differences in Marriage and Employment," Journal of Labor Economics, University of Chicago Press, vol. 27(3), pages 385-437, July.
    8. Seitz, Shannon N., 2002. "Accounting for Racial Differences in Marriage and Employment," Queen's Economics Department Working Papers 273436, Queen's University - Department of Economics.
    9. Marion Leturcq, 2009. "Would you civil union me? Civil unions and taxes in France: Did the reform of income taxation raise the rate of civil unions?," Working Papers halshs-00566846, HAL.
    10. Nezih Guner & Remzi Kaygusuz & Gustavo Ventura, 2012. "Taxation and Household Labour Supply," Review of Economic Studies, Oxford University Press, vol. 79(3), pages 1113-1149.
    11. Marion Leturcq, 2011. "Would you civil union me?," PSE Working Papers halshs-00628642, HAL.
    12. 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.
    13. John A. Knowles, 2013. "Why are Married Men Working So Much? An Aggregate Analysis of Intra-Household Bargaining and Labour Supply," Review of Economic Studies, Oxford University Press, vol. 80(3), pages 1055-1085.
    14. repec:eme:rleczz:s0147-9121(2012)0000036011 is not listed on IDEAS
    15. 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.
    16. Audrey Light & Yoshiaki Omori, 2012. "Can Long-Term Cohabiting and Marital Unions be Incentivized?," Research in Labor Economics,in: Research in Labor Economics, volume 36, pages 241-283 Emerald Publishing Ltd.
    17. 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.

    More about this item

    Keywords

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

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • D1 - Microeconomics - - Household Behavior

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