Beyond Ramsey: Gender-Based Taxation with Non-Cooperative Couples

28 Pages Posted: 24 Oct 2012

See all articles by Volker Meier

Volker Meier

CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Ifo Institute for Economic Research at the University of Munich

Helmut Rainer

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Date Written: October 23, 2012

Abstract

This paper explores the implications of gender-based income taxation in a non-cooperative model of a couple’s time allocation between market work and providing a household public good. We find that the optimal structure of differential taxation by gender is solely determined by spouses’ relative marginal rates of substitution between the public household good and private consumption. Breaking down this general rule into the primitives of the model, the spouse with a lower personal valuation of the public household good should be taxed at a higher rate. If these valuations are identical, a comparative advantage in home production relative to market work will imply a higher marginal tax rate. Using a realistic calibration, we show that these two results may combine to imply a higher optimal tax rate on female labor supply. This result stands in sharp contrast to previous models of gender-based taxation in which households select Pareto efficient allocations. Extending the model to include altruistic preferences, leisure, or human capital accumulation reduces optimal tax rates, while sequential labor supply decisions affect the optimal tax rate of the primary earner in an ambiguous direction.

Keywords: gender-based taxation, non-cooperative family decision-making

JEL Classification: D130, J220, H210

Suggested Citation

Meier, Volker and Rainer, Helmut, Beyond Ramsey: Gender-Based Taxation with Non-Cooperative Couples (October 23, 2012). CESifo Working Paper Series No. 3966, Available at SSRN: https://ssrn.com/abstract=2165822 or http://dx.doi.org/10.2139/ssrn.2165822

Volker Meier

CESifo (Center for Economic Studies and Ifo Institute for Economic Research) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Ifo Institute for Economic Research at the University of Munich ( email )

Poschingerstr. 5
Munich
Germany

Helmut Rainer (Contact Author)

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

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