Arbeitspapier

Household Bargaining and the Design of Couples' Income Taxation

This paper studies the design of couples' income taxation. Consumption and labor supply decisions within the couple are made by maximizing a weighted sum of the spouses' utilities; bargaining weights are given but specific to each couple. The information structure and labor supply decisions follow the Mirrleesian tradition. However, while the household's total consumption is publicly observable, the consumption levels of the individual spouses are not observable. With a utilitarian social welfare function we show that the expression for a spouses' marginal income tax rate includes a Pigouvian (paternalistic) and an incentive term. The Pigouvian term favors a marginal subsidy (tax) for the high-weight (low-weight) spouse, whose labor supply otherwise tends to be too low (high). The sign and the magnitude of the incentive term depends on the weight structure across couples. In some cases both terms have the same sign and imply a positive marginal tax for the low-weight spouse (who may be female) and a negative one for the high-weight spouse (possibly the male). This is at odds with the traditional Boskin and Sheshinski results. Our conclusions can easily be generalized to more egalitarian welfare functions. Finally, we present numerical simulations based on a calibrated specification of our model. The calculations confirm that the male spouse may well have the lower (and possibly even negative) marginal tax rate.

Language: Englisch

Bibliographic citation: Series: CESifo Working Paper ; No. 5205

Classification: Wirtschaft
Taxation and Subsidies: Efficiency; Optimal Taxation
Fiscal Policies and Behavior of Economic Agents: Household
Household Behavior: General

Subject: couples' income taxation
household bargaining
optimal income taxation
household labor supply

Event: Geistige Schöpfung

(who): Cremer, Helmuth
Lozachmeur, Jean-Mari
Maldonado, Dario
Roeder, Kerstin

Event: Veröffentlichung

(who): Center for Economic Studies and ifo Institute (CESifo)

(where): Munich

(when): 2015

Handle: http://hdl.handle.net/10419/107332

Last update: 10.03.2025, 11:44 AM CET

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Object type

Arbeitspapier

Associated

Cremer, Helmuth
Lozachmeur, Jean-Mari
Maldonado, Dario
Roeder, Kerstin
Center for Economic Studies and ifo Institute (CESifo)

Time of origin

2015

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