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Optimal Taxation, Marriage, Home Production, and Family Labor Supply

Author

Listed:
  • Andrew Shephard

    (University of Pennsylvania)

  • George-Levi Gayle

    (Washington Unversity in St. Louis)

Abstract

This paper develops an empirical approach to optimal income taxation design within an equilibrium collective marriage market model. Taxes distort labour supply and time allocation decisions, as well as marriage market outcomes, and the within household decision process. Using data from the American Community Survey and American Time Use Survey we structurally estimate our model and explore empirical design problems. We consider the optimal design problem when the planner is able to condition taxes on marital status, as in the U.S. tax code, but for married couples we allow for an arbitrary form of tax jointness. We also show how design problem changes when we introduce cohabitation as an alternative state, offering many of the same economic benefits of marriage, but with the informational friction that forces individuals in the cohabitation and single state to be subject to the same tax schedule.

Suggested Citation

  • Andrew Shephard & George-Levi Gayle, 2015. "Optimal Taxation, Marriage, Home Production, and Family Labor Supply," 2015 Meeting Papers 882, Society for Economic Dynamics.
    • Handle: RePEc:red:sed015:882
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    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • J12 - Labor and Demographic Economics - - Demographic Economics - - - Marriage; Marital Dissolution; Family Structure
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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