The Tax Unit and Household Production

30 Pages Posted: 20 Sep 2010

See all articles by John Piggott

John Piggott

University of New South Wales (UNSW) - Australian School of Business, School of Economics

John Whalley

University of Western Ontario - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute); Centre for International Governance and Innovation (CIGI)

Multiple version iconThere are 2 versions of this paper

Date Written: August 1994

Abstract

The conventional wisdom is that taxing individuals rather than households is superior from an efficiency point of view under progressive income taxation. This is because it leads to secondary workers, whose labour supply elasticity is high, being taxed at a lower marginal rate than primary workers, whose labour supply elasticity is low. But once household production is taken into account, things are more complicated since tax design should also not distort the input use of family members' time in household production. We use a simple general equilibrium model of household production parameterized using Australian data whose results clearly show that welfare effects can be either positive or negative when changing an existing income tax from an individual to a household basis. In so doing, we are able to investigate the comparative static effects of changing the tax unit from an individual to the household basis in a richer model than that used thus far in the literature, since we capture both Ramsey considerations from differential labour supply elasticities, and factor input distortions into household production. Our results challenge conventional wisdom, and suggest that household unit taxation deserves more sympathetic consideration than is currently the case.

Suggested Citation

Piggott, John and Whalley, John, The Tax Unit and Household Production (August 1994). NBER Working Paper No. w4820. Available at SSRN: https://ssrn.com/abstract=1677826

John Piggott (Contact Author)

University of New South Wales (UNSW) - Australian School of Business, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

John Whalley

University of Western Ontario - Department of Economics ( email )

London, Ontario N6A 5B8
Canada
519-661-3509, ext. 83509 (Phone)
519-661-3666 (Fax)

HOME PAGE: http://www.ssc.uwo.ca/economics/faculty/

National Bureau of Economic Research (NBER)

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CESifo (Center for Economic Studies and Ifo Institute)

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Germany

HOME PAGE: http://www.CESifo.de

Centre for International Governance and Innovation (CIGI) ( email )

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Canada

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