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Love and taxes - and matching institutions

  • Konrad, Kai A.

    ()

    (Social Science Research Center Berlin (WZB) and Department of Economics, Free University of Berlin)

  • Lommerud, Kjell Erik

    ()

    (zDepartment of Economics, University of Bergen)

We study a setting with search frictions in the marriage market and with incomplete contracting inside the family. Everyone prefers a partner that has high income and is a perfect emotional match, but compromises must often be struck. A high income earner may abstain from marrying a low-income earner even though they would be a per- fect match emotionally, because the high-income earner may dislike the implicit income redistribution implied by the marriage. Redistributive income taxation may ease this problem. Income matching institutions that secure that people largely from the same income groups meet each other can substitute for redistribution, so that optimal redistribution is reduced. We also introduce a divorce option. Redistributive taxation is shown both to further and stabilize marriage.

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File URL: http://www.uib.no/filearchive/No.%203-08_1.pdf
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Paper provided by University of Bergen, Department of Economics in its series Working Papers in Economics with number 03/08.

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Length: 31 pages
Date of creation: 05 Feb 2008
Date of revision:
Handle: RePEc:hhs:bergec:2008_003
Contact details of provider: Postal: Institutt for økonomi, Universitetet i Bergen, Postboks 7802, 5020 Bergen, Norway
Phone: (+47)55589200
Fax: (+47)55589210
Web page: http://www.uib.no/econ/en
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  11. Hochman, Harold M & Rodgers, James D, 1974. "Redistribution and the Pareto Criterion," American Economic Review, American Economic Association, vol. 64(4), pages 752-57, September.
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  18. Konrad, Kai A & Lommerud, Kjell Erik, 1995. " Family Policy with Non-cooperative Families," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 581-601, December.
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  23. Imran Rasul, 2006. "Marriage Markets and Divorce Laws," Journal of Law, Economics and Organization, Oxford University Press, vol. 22(1), pages 30-69, April.
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