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Income Taxation and Marital Decisions

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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'.

Suggested Citation

  • Hector Chade & Gustavo Ventura, "undated". "Income Taxation and Marital Decisions," Working Papers 2133479, Department of Economics, W. P. Carey School of Business, Arizona State University.
    • Handle: RePEc:asu:wpaper:2133479
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    1. is not listed on IDEAS
    2. 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.
    3. Alexander Bick & Nicola Fuchs-Schündeln, 2018. "Taxation and Labour Supply of Married Couples across Countries: A Macroeconomic Analysis," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 85(3), pages 1543-1576.
    4. Doepke, M. & Tertilt, M., 2016. "Families in Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 1789-1891, Elsevier.
    5. Audrey Light & Yoshiaki Omori, 2012. "Can Long-Term Cohabiting and Marital Unions be Incentivized?," Research in Labor Economics, in: Research in Labor Economics, pages 241-283, Emerald Group Publishing Limited.
    6. John Knowles & John Kennes, 2011. "Marriage, Fertility and Step-Families: An Equilibrium Analysis," 2011 Meeting Papers 227, Society for Economic Dynamics.
    7. Cremer, Helmuth & Barigozzi, Francesca & Roeder, Kerstin, 2017. "Until taxes do us part: tax penalties or bonuses and the marriage decision," CEPR Discussion Papers 12396, C.E.P.R. Discussion Papers.
    8. John A. Knowles, 2013. "Why are Married Men Working So Much? An Aggregate Analysis of Intra-Household Bargaining and Labour Supply," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 80(3), pages 1055-1085.
    9. 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.
    10. 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?," PSE Working Papers halshs-00566846, HAL.
    11. Audrey Light & Yoshiaki Omori, 2009. "Economic Incentives and Family Formation," Working Papers 09-08, Ohio State University, Department of Economics.
    12. Nezih Guner & Remzi Kaygusuz & Gustavo Ventura, 2012. "Taxation and Household Labour Supply," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(3), pages 1113-1149.
    13. 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.
    14. Raffaella Santolini, 2021. "To Divorce Or Not To Divorce: Is This A Property Tax Problem?," Working Papers 451, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.

    More about this item

    JEL classification:

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

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