Optimal Taxation, Child Care and Models of the Household

34 Pages Posted: 6 Oct 2012

See all articles by Patricia F. Apps

Patricia F. Apps

The University of Sydney - Faculty of Law; IZA Institute of Labor Economics

Ray Rees

Ludwig Maximilian University of Munich (LMU) - Faculty of Economics; CESifo (Center for Economic Studies and Ifo Institute); University of Sydney Law School

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Abstract

This paper presents for the first time the properties of optimal piecewise linear tax systems for two-earner households, based on joint and individual incomes respectively. A key contribution is the analysis of the interaction of second earner wage differences, variation in prices of bought-in inputs into household production in the form of child care, and domestic productivity differences as determinants of across-household heterogeneity in second earner labour supply. The analysis highlights the importance of the elasticity of substitution between parental and non-parental child care in determining the relationship between utility and income across households. A central result is that taking account of a richer and more realistic specification of household time use widens the set of cases in which individual taxation is welfare-superior to joint taxation.

Keywords: optimal taxation, time allocation, household production, child care, inequality, labour supply

JEL Classification: J22, H21, H24, H31, D13

Suggested Citation

Apps, Patricia F. and Rees, Ray, Optimal Taxation, Child Care and Models of the Household. IZA Discussion Paper No. 6823, Available at SSRN: https://ssrn.com/abstract=2157965 or http://dx.doi.org/10.2139/ssrn.2157965

Patricia F. Apps (Contact Author)

The University of Sydney - Faculty of Law ( email )

Faculty of Law, New Law Building F10
The University of Sydney
Sydney, NSW 2006
Australia
+61 2 9351 0241 (Phone)
+61 2 9351 0200 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Ray Rees

Ludwig Maximilian University of Munich (LMU) - Faculty of Economics ( email )

Munich, D-80539
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

University of Sydney Law School ( email )

Sydney
Australia

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