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On the Optimality of Joint Taxation for Non-Cooperative Couples

  • Meier, Volker
  • Rainer, Helmut

We present a non-cooperative model of a family's time allocation between work and a home-produced public good, and examine whether the income tax should apply to couples or individuals. While tax-induced labor supply distortions lead to overprovision of the public good, spouses' failure to internalize the collective effect of their choices points towards underprovision. A large parameter range exists for which a move from individual to joint taxation improves the welfare of both spouses. The source of Pareto-improvement consists in moving the level of the public good closer to its first-best, while an adjustment of intra-family transfers compensates the secondary earner for the increased tax load.

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File URL: https://www.econstor.eu/bitstream/10419/48696/1/VfS_2011_pid_91.pdf
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Paper provided by Verein für Socialpolitik / German Economic Association in its series Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis with number 48696.

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Date of creation: 2011
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Handle: RePEc:zbw:vfsc11:48696
Contact details of provider: Web page: http://www.socialpolitik.org/
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