On the optimality of joint taxation for non-cooperative couples

Meier, Volker; Rainer, Helmut (2010): On the optimality of joint taxation for non-cooperative couples. CESifo Working Paper: Labour Markets,

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.

• Item Type: Paper (Discussion Paper)
• Faculties: Economics; Economics > Chairs > Chair for Public Economics; Economics > Chairs > CESifo-Professorship for Social Policy and Labor Markets
• Subjects: 300 Social sciences > 330 Economics
• Language: English