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Optimal Nonlinear Income Taxation for Non-Cooperative Couples

Author

Listed:
  • Takuya Obara

    (Faculty of Commerce, Chuo University)

  • Yoshitomo Ogawa

    (School of Economics, Kwansei Gakuin University)

Abstract

This study examines optimal nonlinear income taxation on non-cooperative couples that under-provide a household public good. In this study, the income tax has the role of improving the under-provision of the household public good in addition to equity consideration and revenue collection. The optimal marginal tax rate is characterized by the well-known Mirrleesian ABC term and new Pigouvian term. The Pigouvian term can be further decomposed by the two parts. The first reflects the effects of improving the under-provision of the household public good, while the second relates to the expansion of the income tax flexibility. The Pigouvian term results in the marginal tax rate on the top earner being positive. Using US wage data, our quantitative analysis shows that the existence of non-cooperative behavior raises the optimal marginal tax rates at any income level. This result suggests that the optimal marginal tax rates derived in previous studies, which disregard noncooperative behavior, may have been lowly estimated.

Suggested Citation

  • Takuya Obara & Yoshitomo Ogawa, 2025. "Optimal Nonlinear Income Taxation for Non-Cooperative Couples," Discussion Paper Series 291, School of Economics, Kwansei Gakuin University.
    • Handle: RePEc:kgu:wpaper:291
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    More about this item

    Keywords

    Optimal Nonlinear Income Taxation; Non-Cooperative Behavior; Household Public Good;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
    • J16 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Gender; Non-labor Discrimination

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