Optimal Tax Treatment of the Family: Married Couples

24 Pages Posted: 22 Jun 2004 Last revised: 6 Jul 2022

See all articles by Michael J. Boskin

Michael J. Boskin

Stanford University - The Hoover Institution on War, Revolution and Peace; National Bureau of Economic Research (NBER)

Eytan Sheshinski

Hebrew University of Jerusalem; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: July 1979

Abstract

This paper examines the appropriate tax treatment of the family in a series of analytical models and numerical examples. For a population of taxpaying couples which differ in earning capacity, we derive the optimal tax rates for each potential earner. These rates depend crucially upon own and cross labor supply elasticities and the joint distribution of wage rates. Our results suggest that the current system of income splitting in the United States, under which husbands and wives face equal marginal tax rates, is non-optimal. Using results from recent econometric studies, and allowing for a sensitivity analysis, the optimal tax rates on secondary workers in the family are much lower than those on primary earners. Indeed, our best estimate is that the secondary earner would face tax rates only one-half as high as primary earners.

Suggested Citation

Boskin, Michael J. and Sheshinski, Eytan, Optimal Tax Treatment of the Family: Married Couples (July 1979). NBER Working Paper No. w0368, Available at SSRN: https://ssrn.com/abstract=261221

Michael J. Boskin (Contact Author)

Stanford University - The Hoover Institution on War, Revolution and Peace ( email )

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Eytan Sheshinski

Hebrew University of Jerusalem ( email )

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