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

  • Herwig Immervoll
  • Henrik Jacobsen Kleven
  • Claus Thustrup Kreiner
  • Nicolaj Verdelin

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. Ce document présente une évaluation des régimes d’imposition et de transfert des couples mariés dans 15 pays de l’UE à l’aide du micro-modèle de simulation EUROMOD. Nous montrons tout d’abord qu’en Europe, de nombreux régimes d’imposition et de transfert font ressortir des caractéristiques négatives résultant de l’imposition conjointe, dans la mesure où le taux d’imposition appliqué à un contribuable dépend des gains du conjoint, ce qui est désavantageux pour lui. Cette observation va à l’encontre des études consacrées précédemment à cette question, qui faisaient ressortir les aspects positifs de l’imposition conjointe. Les effets négatifs de l’imposition conjointe des revenus tiennent au fait que les programmes de transfert sont modulés en fonction des charges de famille et subordonnées à des critères de ressources, conjugués aux effets de régimes fiscaux qui, d’ordinaire font très peu de place à l’imposition conjointe. Deuxièmement, nous considérons l’effet de distorsion exercé sur l’offre de main-d’oeuvre dû au fait que les seconds apporteurs de revenu sont pénalisés par rapport aux premiers apporteurs de revenu par les systèmes actuels d’imposition-de transfert, et étudions les effets sur le bien-être de réformes de portée restreinte modifiant la fiscalité relative applicable aux conjoints. L’adoption d’une méthode préconisant une réforme de portée restreinte, permet de faire apparaître une analyse simple, fondée sur des modèles plus réalistes de l’offre de main-d’oeuvre que ceux qui sont pris en compte dans les travaux actuels. Nous présentons des micro-simulations montrant que de simples réformes, neutres en termes de recettes, qui permettent d’abaisser le poids de la fiscalité applicable aux seconds apporteurs de revenu, entraînent des hausses substantielles de bien-être dans la plupart des pays. Enfin, nous considérons les répercussions du mariage sur le régime d’imposition-de transfert et procédons à l’estimation de ce que l’on appelle la pénalisation du mariage. Dans la plupart des pays, nous observons que cette pénalisation est forte au bas de l’échelle de distribution des revenus et s’explique essentiellement par des caractéristiques du système de transfert.

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Paper provided by OECD Publishing in its series OECD Social, Employment and Migration Working Papers with number 76.

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Date of creation: 23 Jan 2009
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Handle: RePEc:oec:elsaab:76-en
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  1. Immervoll, Herwig & O'Donoghue, Cathal, 2003. "Employment transitions in 13 European countries: levels, distributions and determining factors of net replacement rates," EUROMOD Working Papers EM3/03, EUROMOD at the Institute for Social and Economic Research.
  2. Richard Blundell & Thomas MaCurdy, 1998. "Labour supply: a review of alternative approaches," IFS Working Papers W98/18, Institute for Fiscal Studies.
  3. Michael J. Boskin & Eytan Sheshinski, 1979. "Optimal Tax Treatment of the Family: Married Couples," NBER Working Papers 0368, National Bureau of Economic Research, Inc.
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  5. Helmuth Cremer & Jean-Marie Lozachmeur & Pierre Pestieau, 2012. "Income taxation of couples and the tax unit choice," Journal of Population Economics, Springer, vol. 25(2), pages 763-778, January.
  6. Immervoll, Herwig & Kleven, Henrik & Kreiner, Claus Thustrup & Saez, Emmanuel, 2004. "Welfare Reform in European Countries: A Micro-Simulation Analysis," CEPR Discussion Papers 4324, C.E.P.R. Discussion Papers.
  7. Craig Brett, 2007. "Optimal nonlinear taxes for families," International Tax and Public Finance, Springer, vol. 14(3), pages 225-261, June.
  8. Emmanuel Saez, 2000. "Optimal Income Transfer Programs: Intensive Versus Extensive Labor Supply Responses," NBER Working Papers 7708, National Bureau of Economic Research, Inc.
  9. Dickert-Conlin, Stacy & Houser, Scott, 1998. "Taxes and Transfers: A New Look at the Marriage Penalty," National Tax Journal, National Tax Association, vol. 51(n. 2), pages 175-217, June.
  10. Emmanuel Saez & Claus Thustrup Kreiner & Henrik Jacobsen Kleven, 2008. "The Optimal Income Taxation of Couples as a Multi-Dimensional Screening Problem," 2008 Meeting Papers 472, Society for Economic Dynamics.
  11. Daniel R. Feenberg & Harvey S. Rosen, 1994. "Recent Developments in the Marriage Tax," NBER Working Papers 4705, National Bureau of Economic Research, Inc.
  12. Nada Eissa, 1995. "Taxation and Labor Supply of Married Women: The Tax Reform Act of 1986 as a Natural Experiment," NBER Working Papers 5023, National Bureau of Economic Research, Inc.
  13. Richard W. Blundell, 1995. "The Impact of Taxation on Labour Force Participation and Labour Supply," OECD Jobs Study Working Papers 8, OECD Publishing.
  14. Marianne P. Bitler & Jonah B. Gelbach & Hilary W. Hoynes & Madeline Zavodny, 2004. "The Impact of Welfare Reform on Marriage and Divorce," Working Papers 110, RAND Corporation Publications Department.
  15. 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.
  16. Alm, James & Whittington, Leslie A, 1999. "For Love or Money? The Impact of Income Taxes on Marriage," Economica, London School of Economics and Political Science, vol. 66(263), pages 297-316, August.
  17. Herwig Immervoll, 2004. "Average and Marginal Effective Tax Rates Facing Workers in the EU: A Micro-Level Analysis of Levels, Distributions and Driving Factors," OECD Social, Employment and Migration Working Papers 19, OECD Publishing.
  18. Eissa, Nada & Hoynes, Hilary Williamson, 2004. "Taxes and the labor market participation of married couples: the earned income tax credit," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 1931-1958, August.
  19. Hilary Williamson Hoynes, 1996. "Work, Welfare, and Family Structure: What Have We Learned?," NBER Working Papers 5644, National Bureau of Economic Research, Inc.
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