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On the optimality of joint taxation for noncooperative couples

  • Meier, Volker
  • Rainer, Helmut

We present a noncooperative model of a family’s time allocation between work and a home-produced public good, and examine whether the income tax should apply to couples or individuals. While tax-induced labor supply distortions lead to overprovision of the public good, spouses’ failure to internalize the collective effect of their choices points towards underprovision. A large parameter range exists for which a move from individual to joint taxation improves the welfare of both spouses. The source of Pareto-improvement consists in moving the level of the public good closer to its first-best, while an adjustment of intra-family transfers compensates the secondary earner for the increased tax load.

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Paper provided by University of Munich, Department of Economics in its series Munich Reprints in Economics with number 19177.

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Date of creation: 2012
Date of revision:
Publication status: Published in Labour Economics 4 19(2012): pp. 633-641
Handle: RePEc:lmu:muenar:19177
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  17. Meier, Volker & Wrede, Matthias, 2013. "Reducing the excess burden of subsidizing the stork: Joint taxation, individual taxation, and family tax splitting," Munich Reprints in Economics 19213, University of Munich, Department of Economics.
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