Optimal Taxation, Child Care and Models of the Household
34 Pages Posted: 6 Oct 2012
There are 2 versions of this paper
Optimal Taxation, Child Care and Models of the Household
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: Suggested Citation