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An Evaluation of the Tax-Transfer Treatment of Married Couples in European Countries

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  • Immervoll, Herwig

    (OECD)

  • Kleven, Henrik Jacobsen

    (London School of Economics)

  • Kreiner, Claus Thustrup

    (University of Copenhagen)

  • Verdelin, Nicolaj

    (University of Copenhagen)

Abstract

This paper presents an evaluation of the tax-transfer treatment of married couples in 15 EU countries using the EUROMOD microsimulation model. First, we show that many tax-transfer schemes in Europe feature negative jointness defined as a situation where the tax rate on one person depends negatively on the earnings of the spouse. This stands in contrast to the previous literature on this question, which has focused on a specific form of positive jointness. The presence of negative jointness is driven by family-based and means-tested transfer programs combined with tax systems that usually feature very little jointness. Second, we consider the labour supply distortion on secondary earners relative to primary earners implied by the current tax-transfer systems, and study the welfare effects of small reforms that change the relative taxation of spouses. By adopting a small-reform methodology, it is possible to set out a simple analysis based on more realistic labour supply models than those considered in the existing literature. We present microsimulations showing that simple revenue-neutral reforms that lower the tax burden on secondary earners are associated with substantial welfare gains in most countries. Finally, we consider the tax-transfer implications of marriage and estimate the so-called marriage penalty. For most countries, we find large marriage penalties at the bottom of the distribution driven primarily by features of the transfer system.

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  • Immervoll, Herwig & Kleven, Henrik Jacobsen & Kreiner, Claus Thustrup & Verdelin, Nicolaj, 2009. "An Evaluation of the Tax-Transfer Treatment of Married Couples in European Countries," IZA Discussion Papers 3965, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp3965
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    Cited by:

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    2. Matthias Fahn & Ray Rees & Amelie Wuppermann, 2016. "Relational contracts for household formation, fertility choice and separation," Journal of Population Economics, Springer;European Society for Population Economics, vol. 29(2), pages 421-455, April.
    3. European Commission, 2011. "Tax Reforms in EU Member States 2011: tax policy challenges for economic growth and fiscal sustainability," Taxation Papers 28, Directorate General Taxation and Customs Union, European Commission.
    4. Olivier Bargain & Mathias Dolls & Dirk Neumann & Andreas Peichl & Sebastian Siegloch, 2011. "Tax-Benefit Systems in Europe and the US: Between Equity and Efficiency," CESifo Working Paper Series 3534, CESifo.
    5. Tibor Paul Hanappi & Sandra Müllbacher, 2016. "Tax incentives and family labor supply in Austria," Review of Economics of the Household, Springer, vol. 14(4), pages 961-987, December.
    6. Matthias Fahn & Ray Rees, 2011. "Household Relational Contracts for Marriage, Fertility and Divorce," CESifo Working Paper Series 3655, CESifo.
    7. Bartels, Charlotte & Pestel, Nico, 2016. "Short- and long-term participation tax rates and their impact on labor supply," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, pages 1126-1159.
    8. Fahn, Matthias, 2011. "Three Essays on Commitment and Information Problems," Munich Dissertations in Economics 13750, University of Munich, Department of Economics.
    9. Bachmann, Ronald & Bechara, Peggy & Cim, Merve & Kramer, Anica, 2018. "Working women and labour market inequality. Research project for the Wilfried Martens Centre for European Studies: Final report - July 2018," RWI Projektberichte, RWI - Leibniz-Institut für Wirtschaftsforschung, number 195939, October.
    10. Nora Lustig, 2020. "Inequality and Social Policy in Latin America," Working Papers 2011, Tulane University, Department of Economics.
    11. Bartels, Charlotte & Pestel, Nico, 2015. "The Impact of Short- and Long-Term Participation Tax Rates on Labor Supply," IZA Discussion Papers 9151, Institute of Labor Economics (IZA).
    12. 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.
    13. Bartels, Charlotte, 2012. "Long-term participation tax rates," Discussion Papers 2012/20, Free University Berlin, School of Business & Economics.
    14. Stefan Bach & Peter Haan & Richard Ochmann, 2013. "Taxation of Married Couples in Germany and the UK: One-Earner Couples Make the Difference," International Journal of Microsimulation, International Microsimulation Association, vol. 6(3), pages 3-24.
    15. Bönke, Timm & Eichfelder, Sebastian & Utz, Stephen, 2012. "Uneven treatment of family life? Horizontal equity in the U.S. tax and transfer system," Discussion Papers 2012/18, Free University Berlin, School of Business & Economics.
    16. Bofinger, Peter & Buch, Claudia M. & Feld, Lars P. & Schmidt, Christoph M. & Wieland, Volker, 2013. "Gegen eine rückwärtsgewandte Wirtschaftspolitik. Jahresgutachten 2013/14," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201314, May.
    17. Michaël Sicsic, 2018. "Financial Incentives to Work in France between 1998 and 2014," Economie et Statistique / Economics and Statistics, Institut National de la Statistique et des Études Économiques (INSEE), issue 503-504, pages 13-35.
    18. Eichhorst, Werner & Thode, Eric, 2009. "Vereinbarkeit von Familie und Beruf: Wie konsistent sind die Reformen?," IZA Discussion Papers 4294, Institute of Labor Economics (IZA).
    19. Eichhorst, Werner & Thode, Eric, 2010. "Vereinbarkeit von Familie und Beruf 2010," IZA Research Reports 30, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    joint taxation; marriage tax; couples; optimal tax; redistribution; labour supply;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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