The Optimal Income Taxation of Couples
This paper analyzes the optimal income tax treatment of couples. Each couple is modelled as a single rational economic agent supplying labor along two dimensions: primary and secondary earnings. We consider fully general joint income tax systems. Separate taxation is never optimal if social welfare depends on total couple incomes. In a model where secondary earners make only a binary work decision (work or not work), we demonstrate that the marginal tax rate of the primary earner is lower when the spouse works. As a result, the tax distortion on the secondary earner decreases with the earnings of the primary earner and actually vanishes to zero asymptotically. Such negative jointness is optimal because redistribution from two-earner toward one-earner couples is more valuable when primary earner income is lower. We also consider a model where both spouses display intensive labor supply responses. In that context, we show that, starting from the optimal separable tax schedules, introducing some negative jointness is always desirable. Numerical simulations suggest that, in that model, it is also optimal for the marginal tax rate on one earner to decrease with the earnings of his/her spouse. We argue that many actual redistribution systems, featuring family-based transfers combined with individually-based taxes, generate schedules with negative jointness.
|Date of creation:||Nov 2006|
|Publication status:||published as Henrik Jacobsen Kleven & Claus Thustrup Kreiner & Emmanuel Saez, 2009. "The Optimal Income Taxation of Couples," Econometrica, Econometric Society, vol. 77(2), pages 537-560, 03.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lundberg, S.J. & Pollak, R.A. & Wales, T.J., 1994.
"Do Husbands and Wives Pool Their Resources? Evidence from U.K. Child Benefit,"
94-6, University of Washington, Department of Economics.
- Lundberg, S.J. & Pollak, R.A. & Wales, T.J., 1994. "Do Husbands and Wives Pool Their Resources? Evidence from U.K. Child Benefit," Discussion Papers in Economics at the University of Washington 94-6, Department of Economics at the University of Washington.
- Richard Blundell & Thomas MaCurdy, 1998.
"Labour supply: a review of alternative approaches,"
IFS Working Papers
W98/18, Institute for Fiscal Studies.
- McAfee, R. Preston & McMillan, John, 1988. "Multidimensional incentive compatibility and mechanism design," Journal of Economic Theory, Elsevier, vol. 46(2), pages 335-354, December.
- Efraim Sadka, 1976. "On Income Distribution, Incentive Effects and Optimal Income Taxation," Review of Economic Studies, Oxford University Press, vol. 43(2), pages 261-267.
- Emmanuel Saez, 2002. "Optimal Income Transfer Programs: Intensive versus Extensive Labor Supply Responses," The Quarterly Journal of Economics, Oxford University Press, vol. 117(3), pages 1039-1073.
- Shelly Lundberg & Robert A. Pollak, 1996. "Bargaining and Distribution in Marriage," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 139-158, Fall.
- Mirrlees, J. A., 1976.
"Optimal tax theory : A synthesis,"
Journal of Public Economics,
Elsevier, vol. 6(4), pages 327-358, November.
- Roger B. Myerson, 1988. "Mechanism Design," Discussion Papers 796, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Stiglitz, Joseph E., 1982.
"Self-selection and Pareto efficient taxation,"
Journal of Public Economics,
Elsevier, vol. 17(2), pages 213-240, March.
- Chiappori, Pierre-Andre, 1988. "Rational Household Labor Supply," Econometrica, Econometric Society, vol. 56(1), pages 63-90, January.
- Boskin, Michael J. & Sheshinski, Eytan, 1983.
"Optimal tax treatment of the family: Married couples,"
Journal of Public Economics,
Elsevier, vol. 20(3), pages 281-297, April.
- Michael J. Boskin & Eytan Sheshinski, 1979. "Optimal Tax Treatment of the Family: Married Couples," NBER Working Papers 0368, National Bureau of Economic Research, Inc.
- Seade, J. K., 1977. "On the shape of optimal tax schedules," Journal of Public Economics, Elsevier, vol. 7(2), pages 203-235, April.
- Tuomala, Matti, 1990. "Optimal Income Tax and Redistribution," OUP Catalogue, Oxford University Press, number 9780198286059.
- Armstrong, Mark, 1996. "Multiproduct Nonlinear Pricing," Econometrica, Econometric Society, vol. 64(1), pages 51-75, January.
- Armstrong, Mark & Rochet, Jean-Charles, 1999. "Multi-dimensional screening:: A user's guide," European Economic Review, Elsevier, vol. 43(4-6), pages 959-979, April.
- Thomas Piketty, 1997. "La redistribution fiscale face au chômage," Revue Française d'Économie, Programme National Persée, vol. 12(1), pages 157-201.
- James Alm & Stacy Dickert-Conlin & Leslie A. Whittington, 1999. "Policy Watch: The Marriage Penalty," Journal of Economic Perspectives, American Economic Association, vol. 13(3), pages 193-204, Summer.
- Emmanuel Saez, 2001. "Using Elasticities to Derive Optimal Income Tax Rates," Review of Economic Studies, Oxford University Press, vol. 68(1), pages 205-229.
- Wilson, Robert, 1997. "Nonlinear Pricing," OUP Catalogue, Oxford University Press, number 9780195115826.
- Diamond, P., 1994.
"Optimal Income Taxation: An Exemple with a U-Shaped Pattern of Optimal Marginal Tax Rates,"
94-14, Massachusetts Institute of Technology (MIT), Department of Economics.
- Diamond, Peter A, 1998. "Optimal Income Taxation: An Example with a U-Shaped Pattern of Optimal Marginal Tax Rates," American Economic Review, American Economic Association, vol. 88(1), pages 83-95, March.
- Guesnerie, Roger & Laffont, Jean-Jacques, 1984. "A complete solution to a class of principal-agent problems with an application to the control of a self-managed firm," Journal of Public Economics, Elsevier, vol. 25(3), pages 329-369, December.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:12685. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.