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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: http://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. Dan Anderberg, 2007. "Inefficient households and the mix of government spending," Public Choice, Springer, vol. 131(1), pages 127-140, April.
  2. Zhiqi Chen & Frances Woolley, 1999. "A Cournot-Nash Model of Family Decision Making," Carleton Economic Papers 99-13, Carleton University, Department of Economics, revised Oct 2001.
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  4. Volker Meier & Matthias Wrede, 2013. "Reducing the excess burden of subsidizing the stork: joint taxation, individual taxation, and family tax splitting," Journal of Population Economics, Springer, vol. 26(3), pages 1195-1207, July.
  5. Helmut Rainer, 2005. "Should We Write Prenuptial Contracts?," Discussion Paper Series, Department of Economics 200514, Department of Economics, University of St. Andrews.
  6. Kleven, Henrik & Kreiner, Claus Thustrup & Saez, Emmanuel, 2006. "The Optimal Income Taxation of Couples," CEPR Discussion Papers 5978, C.E.P.R. Discussion Papers.
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  9. 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.
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  13. Lundberg, S. & Pollak, R.A., 1991. "Separate Spheres Bargaining and the Marriage Market," Discussion Papers in Economics at the University of Washington 91-08, Department of Economics at the University of Washington.
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  15. Michael J. Boskin & Eytan Sheshinski, 1979. "Optimal Tax Treatment of the Family: Married Couples," NBER Working Papers 0368, National Bureau of Economic Research, Inc.
  16. 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.
  17. Patricia Apps & Ray Rees, 2011. "Relational Contracts, Taxation and the Household," CESifo Economic Studies, CESifo, vol. 57(2), pages 245-258, June.
  18. John Piggott & John Whalley, 1994. "The Tax Unit and Household Production," NBER Working Papers 4820, National Bureau of Economic Research, Inc.
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  20. Imran Rasul, 2006. "The Economics of Child Custody," Economica, London School of Economics and Political Science, vol. 73(289), pages 1-25, 02.
  21. 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.
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