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The Taxation of Couples

Author

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  • Apps, Patricia

    () (University of Sydney)

  • Rees, Ray

    () (University of Munich)

Abstract

This paper is concerned with the question of how couples should be taxed. One reason for the importance of this issue is simply that the overwhelming majority of individuals live in households formed around couples, and so it could be argued that empirically, this is the single most important problem in personal income taxation. A second reason is that the economic theory of optimal taxation and tax reform, at least as it is presented in the mainstream literature, provides little guidance on this issue, resting as it does on models of the single person household. An old insight in the earlier public finance literature is that any discussion of the taxation of two-person households necessarily involves the recognition of the importance of household production. In this paper we try to show how a simple model of household production can be used to help the analysis of optimal taxation and tax reform, and to put the "conventional wisdom", which says that it is optimal to tax women on a separate, lower tax schedule than men, on a firmer basis. What emerges clearly from the analysis is how centrally important the relationship between productivity in household production and female labour supply really is, and how little we know about it empirically.

Suggested Citation

  • Apps, Patricia & Rees, Ray, 2007. "The Taxation of Couples," IZA Discussion Papers 2910, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp2910
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    References listed on IDEAS

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    1. Boskin, Michael J. & Sheshinski, Eytan, 1983. "Optimal tax treatment of the family: Married couples," Journal of Public Economics, Elsevier, pages 281-297.
    2. Martin Feldstein & Daniel R. Feenberg, 1996. "The Taxation of Two-Earner Families," NBER Chapters,in: Empirical Foundations of Household Taxation, pages 39-75 National Bureau of Economic Research, Inc.
    3. Apps, Patricia & Rees, Ray, 1999. "On the taxation of trade within and between households," Journal of Public Economics, Elsevier, vol. 73(2), pages 241-263, August.
    4. Apps, Patricia F. & Rees, Ray, 1988. "Taxation and the household," Journal of Public Economics, Elsevier, vol. 35(3), pages 355-369, April.
    5. Rees, Ray, 1988. "Taxation and the Household," Munich Reprints in Economics 3411, University of Munich, Department of Economics.
    6. Myles,Gareth D., 1995. "Public Economics," Cambridge Books, Cambridge University Press, number 9780521497695, March.
    7. Auerbach, Alan J. & Hines, James Jr., 2002. "Taxation and economic efficiency," Handbook of Public Economics,in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 21, pages 1347-1421 Elsevier.
    8. Eytan Sheshinski, 1972. "The Optimal Linear Income-tax," Review of Economic Studies, Oxford University Press, vol. 39(3), pages 297-302.
    9. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Oxford University Press, vol. 38(2), pages 175-208.
    10. Piggott, John & Whalley, John, 1996. "The Tax Unit and Household Production," Journal of Political Economy, University of Chicago Press, vol. 104(2), pages 398-418, April.
    11. Apps, Patricia, 1982. "Institutional inequality and tax incidence," Journal of Public Economics, Elsevier, vol. 18(2), pages 217-242, July.
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    Citations

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    Cited by:

    1. Volker Meier & Matthias Wrede, 2013. "Reducing the excess burden of subsidizing the stork: joint taxation, individual taxation, and family tax splitting," Journal of Population Economics, Springer;European Society for Population Economics, vol. 26(3), pages 1195-1207, July.
    2. Patricia Apps & Ray Rees, 2008. "Taxation, Labour Supply and Saving," CEPR Discussion Papers 590, Centre for Economic Policy Research, Research School of Economics, Australian National University.
    3. Christos Koulovatianos & Carsten Schröder & Ulrich Schmidt, 2005. "Non-Market Time and Household Well-Being," Vienna Economics Papers 0507, University of Vienna, Department of Economics.
    4. Alberto Alesina & Andrea Ichino & Loukas Karabarbounis, 2011. "Gender-Based Taxation and the Division of Family Chores," American Economic Journal: Economic Policy, American Economic Association, pages 1-40.
    5. Patricia Apps & Ray Rees, 2011. "Relational Contracts, Taxation and the Household," CESifo Economic Studies, CESifo, vol. 57(2), pages 245-258, June.
    6. Gehringer, Agnieszka & Klasen, Stephan, 2015. "Labor force participation of women in the EU - What role do family policies play?," Center for European, Governance and Economic Development Research Discussion Papers 242, University of Goettingen, Department of Economics.
    7. Meier, Volker & Rainer, Helmut, 2012. "On the optimality of joint taxation for noncooperative couples," Labour Economics, Elsevier, vol. 19(4), pages 633-641.
    8. Marie-Louise Leroux & Grégory Ponthière, 2009. "Wives, husbands and wheelchairs: Optimal tax policy under gender-specific health," PSE Working Papers halshs-00575059, HAL.
    9. Patricia Apps & Ray Rees, 2007. "Household Models: An Historical Perspective," CESifo Working Paper Series 2172, CESifo Group Munich.
    10. Steiner, Viktor & Wrohlich, Katharina, 2006. "Introducing Family Tax Splitting in Germany: How Would It Affect the Income Distribution and Work Incentives?," IZA Discussion Papers 2245, Institute for the Study of Labor (IZA).
    11. Koulovatianos, Christos & Schrder, Carsten & Schmidt, Ulrich, 2009. "Nonmarket Household Time and the Cost of Children," Journal of Business & Economic Statistics, American Statistical Association, vol. 27, pages 42-51.
    12. Callan, Tim & van Soest, Arthur & Walsh, John R., 2007. "Tax Structure and Female Labour Market Participation: Evidence from Ireland," IZA Discussion Papers 3090, Institute for the Study of Labor (IZA).
    13. Marie-Louise Leroux & Grégory Ponthière, 2013. "Optimal prevention when coexistence matters," Journal of Population Economics, Springer;European Society for Population Economics, vol. 26(3), pages 1095-1127, July.
    14. Ruud Mooij, 2008. "Reinventing the Dutch tax-benefit system: exploring the frontier of the equity-efficiency trade-off," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 15(1), pages 87-103, February.
    15. Viktor Steiner & Katharina Wrohlich, 2008. "Introducing Family Tax Splitting in Germany: How Would It Affect the Income Distribution, Work Incentives, and Household Welfare?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 64(1), pages 115-142, March.
    16. Patricia Apps & Ray Rees, 2010. "Australian Family Tax Reform and the Targeting Fallacy," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 43(2), pages 153-175.
    17. Immervoll, Herwig & Kleven, Henrik Jacobsen & Kreiner, Claus Thustrup & Verdelin, Nicolaj, 2011. "Optimal tax and transfer programs for couples with extensive labor supply responses," Journal of Public Economics, Elsevier, vol. 95(11), pages 1485-1500.

    More about this item

    Keywords

    labour supply; household production; optimal taxation;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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