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Household taxation, consumption insurance, and welfare

Author

Listed:
  • Bredemeier, Christian
  • Gravert, Jan Hendrik
  • Jüßen, Falko

Abstract

We reexamine joint taxation of couples in the presence of wage risk and incomplete insurance markets. By linking spouses' marginal tax rates, joint taxation changes how households use labor supply to self-insure consumption against wage shocks. This creates an insurance advantage of joint taxation worth 1.61 percent of con sumption in a calibrated life-cycle model. It largely offsets the disadvantages of joint taxation, though not completely in the current economic and policy environment. Joint taxation can become welfare-preferred at higher tax progressivity and, when progressivity is optimized separately under each system, joint and separate taxation deliver essentially identical welfare.

Suggested Citation

  • Bredemeier, Christian & Gravert, Jan Hendrik & Jüßen, Falko, 2026. "Household taxation, consumption insurance, and welfare," Ruhr Economic Papers 1228, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    • Handle: RePEc:zbw:rwirep:344506
    DOI: 10.4419/96973413
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    JEL classification:

    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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