Taxation of Couples

23 Pages Posted: 20 Jul 2007

See all articles by Patricia F. Apps

Patricia F. Apps

The University of Sydney Law School; 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

Date Written: July 2007

Abstract

This paper is concerned with the question of how couples should be taxed. One reason for the importance of this issue is simply that the overwhelming majority of individuals live in households formed around couples, and so it could be argued that empirically, this is the single most important problem in personal income taxation. A second reason is that the economic theory of optimal taxation and tax reform, at least as it is presented in the mainstream literature, provides little guidance on this issue, resting as it does on models of the single person household. An old insight in the earlier public finance literature is that any discussion of the taxation of two-person households necessarily involves the recognition of the importance of household production. In this paper we try to show how a simple model of household production can be used to help the analysis of optimal taxation and tax reform, and to put the conventional wisdom, which says that it is optimal to tax women on a separate, lower tax schedule than men, on a firmer basis. What emerges clearly from the analysis is how centrally important the relationship between productivity in household production and female labour supply really is, and how little we know about it empirically.

Keywords: optimal taxation, household production, labour supply

JEL Classification: H21, D13, J22

Suggested Citation

Apps, Patricia F. and Rees, Ray, Taxation of Couples (July 2007). Available at SSRN: https://ssrn.com/abstract=1000899 or http://dx.doi.org/10.2139/ssrn.1000899

Patricia F. Apps (Contact Author)

The University of Sydney Law School ( 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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