On the Optimality of Joint Taxation for Non-Cooperative Couples
29 Pages Posted: 28 Jul 2010
Date Written: July 27, 2010
Abstract
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.
Keywords: individual taxation, joint taxation, household production, public goods
JEL Classification: D13, D62, H23, H24, J22
Suggested Citation: Suggested Citation
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