Love and Taxes - And Matching Institutions

33 Pages Posted: 10 Jun 2008

See all articles by Kai A. Konrad

Kai A. Konrad

Max Planck Institute for Tax Law and Public Finance; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research); IZA Institute of Labor Economics

Kjell Erik Lommerud

University of Bergen - Department of Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

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Date Written: February 2008

Abstract

We study a setting with search frictions in the marriage market and with incomplete contracting inside the family. Everyone prefers a partner that has a high income and is a perfect emotional match, but compromises must often be struck. A high-income earner may abstain from marrying a low-income earner even though they would be a perfect match emotionally, because he may dislike the implicit income redistribution implied by marriage. Redistributive income taxation may ease this problem. Income matching institutions that secure that people from the same income groups largely meet each other can substitute for redistribution, so that optimal redistribution is reduced. We also introduce a divorce option. Redistributive taxation is shown both to further and stabilize marriage.

Keywords: assortative mating, divorce, emotional rents, incomplete contracts, love, marriage, optimal taxation

JEL Classification: D61, H21, J12

Suggested Citation

Konrad, Kai A. and Lommerud, Kjell Erik, Love and Taxes - And Matching Institutions (February 2008). CEPR Discussion Paper No. DP6703, Available at SSRN: https://ssrn.com/abstract=1141609

Kai A. Konrad (Contact Author)

Max Planck Institute for Tax Law and Public Finance ( email )

Marstallplatz 1
Munich, 80539
Germany

HOME PAGE: http://www.tax.mpg.de/en/pub/home.cfm

Centre for Economic Policy Research (CEPR)

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CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

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IZA Institute of Labor Economics

P.O. Box 7240
Bonn, 53072
Germany

Kjell Erik Lommerud

University of Bergen - Department of Economics ( email )

Fosswinckelsgt. 6
N-5007 Bergen, 5007
Norway
+47 5 558 9209 (Phone)
+47 5 558 9210 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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