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Income Taxation and Marital Decisions

  • Hector Chade

    (Arizona State University)

  • Gustavo Ventura

    (University of Western Ontario)

We develop an equilibrium matching model with search frictions in order to analyze the effects that differential tax treatment of married and single individuals have on marriage formation and dissolution. Our main results are the following: (i) although an increase in the ‘marriage tax’ reduces the number of marriages, there is a two-sided search e¤ect that can substantially mitigate its impact on marriage formation and dissolution; (ii) an increase in the ‘marriage tax’ need not make both men and women more reluctant to get married; (iii) the e¤ects of a given change in the differential taxation on marital behavior depend on whether it is implemented via changes in the tax rates that singles face or in the tax rates that married people face; (iv) we compute an example to calculate the size of the two-sided search e¤ect and …nd that large changes in the marriage tax penalty can lead to small changes in the number of marriages and divorces. The example also reveals that the number of divorces can actually increase with a reduction in the ‘marriage tax’.

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File URL: ftp://webacademicos.udesa.edu.ar/pub/econ/doc35.pdf
File Function: First version, 2001
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Paper provided by Universidad de San Andres, Departamento de Economia in its series Working Papers with number 35.

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Length: 30 pages
Date of creation: Jun 2001
Date of revision: Jun 2001
Handle: RePEc:sad:wpaper:35
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  1. BLOCH, Francis & RYDER, Harl, 1994. "Two-Sided Search, Marriages and Matchmakers," CORE Discussion Papers 1994028, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Robert Shimer & Lones Smith, 2000. "Assortative Matching and Search," Econometrica, Econometric Society, vol. 68(2), pages 343-370, March.
  3. Ken Burdett & Randall Wright, 1998. "Two-Sided Search with Nontransferable Utility," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(1), pages 220-245, January.
  4. Becker, Gary S, 1973. "A Theory of Marriage: Part I," Journal of Political Economy, University of Chicago Press, vol. 81(4), pages 813-46, July-Aug..
  5. Burdett, Ken & Coles, Melvyn G, 1997. "Marriage and Class," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 141-68, February.
  6. Burdett, Kenneth & Coles, Melvyn G, 1999. "Long-Term Partnership Formation: Marriage and Employment," Economic Journal, Royal Economic Society, vol. 109(456), pages F307-34, June.
  7. Mark Bagnoli & Ted Bergstrom, 2005. "Log-concave probability and its applications," Economic Theory, Springer, vol. 26(2), pages 445-469, 08.
  8. Lones Smith, 2006. "The Marriage Model with Search Frictions," Journal of Political Economy, University of Chicago Press, vol. 114(6), pages 1124-1146, December.
  9. An, Mark Yuying, 1995. "Logconcavity versus Logconvexity: A Complete Characterization," Working Papers 95-03, Duke University, Department of Economics.
  10. Alm, James & Whittington, Leslie A., 1995. "Does the Income Tax Affect Marital Decisions?," National Tax Journal, National Tax Association, vol. 48(4), pages 565-72, December.
  11. Hector Chade, . "Two-Sided Search and Perfect Segregation with Fixed Search Costs," Working Papers 2132861, Department of Economics, W. P. Carey School of Business, Arizona State University.
  12. Hector Chade, . "Search, Heterogeneity, and Noisy Observable Types," Working Papers 2133485, Department of Economics, W. P. Carey School of Business, Arizona State University.
  13. Sjoquist, David L. & Walker, Mary Beth, 1995. "The Marriage Tax and the Rate and Timing of Marriage," National Tax Journal, National Tax Association, vol. 48(4), pages 547-58, December.
  14. Eeckhout, Jan, 1999. "Bilateral Search and Vertical Heterogeneity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 869-87, November.
  15. Chade, Hector, 2006. "Matching with noise and the acceptance curse," Journal of Economic Theory, Elsevier, vol. 129(1), pages 81-113, July.
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