Household Bargaining and the Design of Couples' Income Taxation

35 Pages Posted: 5 Mar 2015

See all articles by Helmuth Cremer

Helmuth Cremer

University of Toulouse (GREMAQ & IDEI); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Jean-Marie Lozachmeur

University of Toulouse 1

Dario Maldonado

Universidad del Rosario - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Kerstin Roeder

Ludwig Maximilian University of Munich (LMU); University of Augsburg

Multiple version iconThere are 2 versions of this paper

Date Written: February 26, 2015

Abstract

This paper studies the design of couples’ income taxation. Consumption and labor supply decisions within the couple are made by maximizing a weighted sum of the spouses’ utilities; bargaining weights are given but specific to each couple. The information structure and labor supply decisions follow the Mirrleesian tradition. However, while the household’s total consumption is publicly observable, the consumption levels of the individual spouses are not observable. With a utilitarian social welfare function we show that the expression for a spouses’ marginal income tax rate includes a “Pigouvian” (paternalistic) and an incentive term. The Pigouvian term favors a marginal subsidy (tax) for the high-weight (low-weight) spouse, whose labor supply otherwise tends to be too low (high). The sign and the magnitude of the incentive term depends on the weight structure across couples. In some cases both terms have the same sign and imply a positive marginal tax for the low-weight spouse (who may be female) and a negative one for the high-weight spouse (possibly the male). This is at odds with the traditional Boskin and Sheshinski results. Our conclusions can easily be generalized to more egalitarian welfare functions. Finally, we present numerical simulations based on a calibrated specification of our model. The calculations confirm that the male spouse may well have the lower (and possibly even negative) marginal tax rate.

Keywords: couples’ income taxation, household bargaining, optimal income taxation, household labor supply

JEL Classification: H210, H310, D100

Suggested Citation

Cremer, Helmuth and Lozachmeur, Jean-Marie and Maldonado, Dario and Roeder, Kerstin, Household Bargaining and the Design of Couples' Income Taxation (February 26, 2015). CESifo Working Paper Series No. 5205, Available at SSRN: https://ssrn.com/abstract=2573607

Helmuth Cremer

University of Toulouse (GREMAQ & IDEI) ( email )

Toulouse, 31000
France
+33 1 6112 8606 (Phone)
+33 1 6112 8637 (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

Jean-Marie Lozachmeur

University of Toulouse 1 ( email )

Place Anatole France
Toulouse Cedex, F-31042
France

Dario Maldonado

Universidad del Rosario - Department of Economics ( email )

Casa Pedro Fermín
Calle 14 # 4-69
Bogota
Colombia

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

Poschinger Str. 5
Munich, DE-81679
Germany

Kerstin Roeder (Contact Author)

Ludwig Maximilian University of Munich (LMU) ( email )

Geschwister-Scholl-Platz 1
Munich, DE Bavaria 80539
Germany

University of Augsburg ( email )

Universitätsstr. 2
Augsburg, 86159
Germany

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
34
Abstract Views
340
PlumX Metrics