Konrad, Kai A.; Lommerud, Kjell Erik
Love and taxes - and matching institutions.
WZB Discussion Paper, SP II 2008-04
Full text not available from 'Open Access LMU'.
We study a setting with search frictions in the marriage market and with
incomplete contracting inside the family. Everyone prefers a partner that has
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 the highincome
earner may dislike the implicit income redistribution implied by the
marriage. Redistributive income taxation may ease this problem. Income
matching institutions that secure that people largely from the same income
groups 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.