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Household Bargaining and the Design of Couples' Income Taxation

Serie

  • Annual Conference 2014 (Hamburg): Evidence-based Economic Policy

Resumen

  • The paper studies the design of couple’s income taxation when consumption and labor supply decisions within the couple are made in a cooperative way according to some bargaining scheme. Specifically, the couple maximizes a weighted sum of the spouse’s utilities. In the first part of the paper, the spouses bargaining weights (specific to each couple) are exogenously given. In the second part, these bargaining weights are endogenous, and depend on the spouse’s respective contributions to total family income. The information structure is the traditional one in Mirrleesian nonlinear income tax models. However, while the household s total consumption is publicly observable, the consumption levels of the individual spouses are not observable. The social welfare function is utilitarian. We show that the expression for a spouse’s marginal income tax rate includes a Pigouvian (paternalistic) and an incentive term. With exogenous weights 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). In some cases, both terms have the same sign and imply a positive marginal tax for the low-weight spouse and a negative one for the high-weight spouse.

fecha de publicación

  • 2014

Líneas de investigación

  • Couples’ Income Taxation
  • Household Bargaining
  • Household Labor Supply
  • Optimal Income Taxation

Issue

  • 100586