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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://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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  1. Piggott, John & Whalley, John, 1996. "The Tax Unit and Household Production," Journal of Political Economy, University of Chicago Press, vol. 104(2), pages 398-418, April.
  2. Alberto Alesina & Andrea Ichino & Loukas Karabarbounis, 2007. "Gender Based Taxation and the Division of Family Chores," NBER Working Papers 13638, National Bureau of Economic Research, Inc.
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  4. 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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  9. Chen, Zhiqi & Woolley, Frances, 2001. "A Cournot-Nash Model of Family Decision Making," Economic Journal, Royal Economic Society, vol. 111(474), pages 722-48, October.
  10. Dan Anderberg, 2007. "Inefficient households and the mix of government spending," Public Choice, Springer, vol. 131(1), pages 127-140, April.
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  12. Rainer, Helmut, 2007. "Should we write prenuptial contracts?," Munich Reprints in Economics 19819, University of Munich, Department of Economics.
  13. Apps,Patricia & Rees,Ray, 2009. "Public Economics and the Household," Cambridge Books, Cambridge University Press, number 9780521887878, October.
  14. Patricia F. Apps & Ray Rees, 1999. "Individual versus Joint Taxation in Models with Household Production," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 393-403, April.
  15. Konrad, Kai A & Lommerud, Kjell Erik, 1995. " Family Policy with Non-cooperative Families," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 581-601, December.
  16. Peter Gottfried & Wolfram Richter, 1999. "The Tax Unit and Household Production: Comment," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 404-409, April.
  17. Jonathan P Thomas & Tim Worrall, 2010. "Dynamic Relational Contracts with Credit Constraints," The School of Economics Discussion Paper Series 1009, Economics, The University of Manchester.
  18. Apps, Patricia & Rees, Ray, 2007. "The Taxation of Couples," IZA Discussion Papers 2910, Institute for the Study of Labor (IZA).
  19. Imran Rasul, 2006. "The Economics of Child Custody," Economica, London School of Economics and Political Science, vol. 73(289), pages 1-25, 02.
  20. Pollak, Robert A, 1985. "A Transaction Cost Approach to Families and Households," Journal of Economic Literature, American Economic Association, vol. 23(2), pages 581-608, June.
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