Abstract

http://ssrn.com/abstract=225219
 
 

Citations (4)



 


 



The Taxation of Two Earner Families


Martin S. Feldstein


National Bureau of Economic Research (NBER); Harvard University

Daniel R. Feenberg


National Bureau of Economic Research (NBER)

June 1995

NBER Working Paper No. w5155

Abstract:     
The present paper examines the efficiency and revenue effects of several alternative tax treatments of two earner families using estimates of the compensated elasticities of the labor supply of married women based on the experience with the 1986 tax rate reductions. The analysis of alternatives is based on the NBER TAXSIM model which has been modified to incorporate separate estimates of the earnings of spouses. The marginal tax rates explicitly incorporate the Social Security payroll taxes net of the present actuarial value of future retirement benefits. Three general conclusions emerge in this paper. First, the existing high marginal tax rates on married women cause big eadweight losses that can be reduced by alternative tax rules that lower marginal tax rates. Second, the behavioral responses to the lower marginal tax rates induce additional tax payments that offset large fractions of the 'static' revenue losses. Third, there are substantial differences in cost- effectiveness among these options, i.e. in the revenue cost per dollar of reduced deadweight loss. Several of the options are sufficiently cost- effective that they could probably be combined with other ways of raising revenue to produce a net reduction in the deadweight loss of the tax system as a whole. We are aware, however, that the current framework is very restrictive in three ways. It ignores the response of the primary earner to any change in tax rates on spousal income. It defines the labor supply response narrowly in terms of participation and hours, excluding other dimensions of labor supply. Taxes affect not only the labor supply of men and women but also change taxable income through changes in excluded income and deductions. These changes in taxable income are the key variable for influencing tax revenue and the deadweight loss of alternative tax rules.

Number of Pages in PDF File: 57

working papers series


Download This Paper

Date posted: June 11, 2000  

Suggested Citation

Feldstein, Martin S. and Feenberg, Daniel R., The Taxation of Two Earner Families (June 1995). NBER Working Paper No. w5155. Available at SSRN: http://ssrn.com/abstract=225219

Contact Information

Martin S. Feldstein (Contact Author)
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
617-868-3905 (Phone)
617-868-7194 (Fax)
Harvard University ( email )
Littauer Center
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
617-495-2167 (Phone)
617-496-5444 (Fax)
Daniel R. Feenberg
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
617-588-0343 (Phone)
Feedback to SSRN


Paper statistics
Abstract Views: 726
Downloads: 10
Citations:  4

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo3 in 0.375 seconds