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A Switch from Joint to Individual Taxation Is Welfare Improving

  • André Decoster
  • Peter Haan

In this paper we empirically derive the welfare effects of a shift from joint taxation with full income splitting to a revenue neutral system of individual taxation in Germany. For the empirical welfare evaluation we estimate the preference heterogeneity in the population and use normative welfare concepts proposed in Fleurbaey (2006) to solve the difficulties of comparison between, and aggregation of heterogeneous individuals and households. We show that, irrespective of the individual welfare measure we use, individual taxation would on average increase individual welfare. Moreover, as far as the aggregation is concerned, we show that any social planner, ranging from a utilitarian to a Rawlsian one, would come to the same conclusion: a policy change which replaces joint taxation with full splitting by individual taxation, would be welfare improving.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.389950.de/dp1175.pdf
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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1175.

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Length: 19 p.
Date of creation: 2011
Date of revision:
Handle: RePEc:diw:diwwpp:dp1175
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  1. John Creedy & Guyonne Kalb, 2003. "Discrete Hours Labour Supply Modelling: Specification, Estimation and Simulation," Melbourne Institute Working Paper Series wp2003n16, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  2. Rolf Aaberge & Ugo Colombino & Steinar Strøm, 2004. "Do more equal slices shrink the cake? An empirical investigation of tax-transfer reform proposals in Italy," Journal of Population Economics, Springer, vol. 17(4), pages 767-785, December.
  3. André DECOSTER & Peter HAAN, 2010. "Empirical welfare analysis in random utility models of labour supply," Center for Economic Studies - Discussion papers ces10.30, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
  4. LaLumia, Sara, 2008. "The effects of joint taxation of married couples on labor supply and non-wage income," Journal of Public Economics, Elsevier, vol. 92(7), pages 1698-1719, July.
  5. Bargain, Olivier & Caliendo, Marco & Haan, Peter & Orsini, Kristian, 2006. "'Making Work Pay' in a Rationed Labour Market," IZA Discussion Papers 2033, Institute for the Study of Labor (IZA).
  6. Alberto Alesina & Andrea Ichino & Loukas Karabarbounis, 2011. "Gender-Based Taxation and the Division of Family Chores," American Economic Journal: Economic Policy, American Economic Association, vol. 3(2), pages 1-40, May.
  7. Gert G. Wagner & Joachim R. Frick & Jürgen Schupp, 2007. "The German Socio-Economic Panel Study (SOEP): Scope, Evolution and Enhancements," SOEPpapers on Multidisciplinary Panel Data Research 1, DIW Berlin, The German Socio-Economic Panel (SOEP).
  8. Michael J. Boskin & Eytan Sheshinski, 1979. "Optimal Tax Treatment of the Family: Married Couples," NBER Working Papers 0368, National Bureau of Economic Research, Inc.
  9. Aaberge, Rolf & Dagsvik, John K & Strom, Steinar, 1995. " Labor Supply Responses and Welfare Effects of Tax Reforms," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 635-59, December.
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