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Love and Taxes - and Matching Institutions

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  • Lommerud, Kjell Erik
  • Konrad, Kai A.

Abstract

We study a setting with search frictions in the marriage market and with incomplete contracting inside the family. Everyone prefers a partner that has a high income and is a perfect emotional match, but compromises must often be struck. A high-income earner may abstain from marrying a low-income earner even though they would be a perfect match emotionally, because he may dislike the implicit income redistribution implied by marriage. Redistributive income taxation may ease this problem. Income matching institutions that secure that people from the same income groups largely meet each other can substitute for redistribution, so that optimal redistribution is reduced. We also introduce a divorce option. Redistributive taxation is shown both to further and stabilize marriage.

Suggested Citation

  • Lommerud, Kjell Erik & Konrad, Kai A., 2008. "Love and Taxes - and Matching Institutions," CEPR Discussion Papers 6703, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:6703
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    Cited by:

    1. Kai Konrad, 2015. "Affection, speed dating and heartbreaking," Journal of Population Economics, Springer;European Society for Population Economics, vol. 28(1), pages 159-172, January.
    2. Balestrino, Alessandro & Ciardi, Cinzia & Mammini, Claudio, 2013. "On the causes and consequences of divorce," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 45(C), pages 1-9.
    3. Man Si, 2015. "Intrafamily bargaining and love," Review of Economics of the Household, Springer, vol. 13(4), pages 771-789, December.
    4. Kai A. Konrad & Kjell Erik Lommerud, 2010. "Love and taxes – and matching institutions," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 43(3), pages 919-940, August.
    5. Dan Anderberg & Yu Zhu, 2010. "The Effect of Education on Marital Status and Partner Characteristics: Evidence from the UK," CESifo Working Paper Series 3104, CESifo.
    6. Dan Anderberg & Yu Zhu, 2014. "What a difference a term makes: the effect of educational attainment on marital outcomes in the UK," Journal of Population Economics, Springer;European Society for Population Economics, vol. 27(2), pages 387-419, April.
    7. Aloys Prinz, 2010. "Labor markets and mating markets: Using taxes to reduce the male–female pay gap," Journal of Bioeconomics, Springer, vol. 12(1), pages 43-53, April.
    8. Schaubert, Marianna, 2018. "Do Alimony Regulations Matter inside Marriage? Evidence from the 2008 Reform of the German Maintenance Law," EconStor Preprints 173193, ZBW - Leibniz Information Centre for Economics.
    9. Schaubert, Marianna, 2018. "Do Alimony Regulations Matter inside Marriage? Evidence from the 2008 Reform of the German Maintenance Law," VfS Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181508, Verein für Socialpolitik / German Economic Association.

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    More about this item

    Keywords

    Assortative mating; Divorce; Emotional rents; Incomplete contracts; Love; Marriage; Optimal taxation;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • J12 - Labor and Demographic Economics - - Demographic Economics - - - Marriage; Marital Dissolution; Family Structure

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