Household Bargaining, Spouses' Consumption Patterns and the Design of Commodity Taxes

29 Pages Posted: 27 Feb 2017

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 Liege - Economics, Business Administration and Social Sciences

Kerstin Roeder

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

Abstract

We study the role and structure of commodity taxes when consumption and labor supplies are determined through a bargaining procedure between spouses, and where an optimal income tax is also available. We focus on the question whether there should be differences in tax treatment between "female" and "male" products. When weights (as well as wages) differ across couples, the heterogeneity is multidimensional and the Atkinson and Stiglitz theorem does not apply. In addition, when the social welfare function is individual-based, spouses' social weights may differ from their weights within the couples. This brings about Pigouvian considerations which in themselves may justify commodity taxes. We show that the expressions for the tax rates include Pigouvian and incentive terms. Their roles are most apparent in the case where some goods are consumed exclusively by one of the spouses. Supposing, for instance, that the female spouse has the lower bargaining weight, we find conditions under which the Pigouvian term calls for a subsidization of the "female good", and a taxation of the "male good". The incentive term depends on the distribution of bargaining weights across couples. For instance, for the exclusive consumption case, when the weight of the female spouse increases with wages, the female good tends to be consumed in larger proportion by more productive couples. Consequently, the incentive term makes it a candidate for taxation. In this case the Pigouvian term is mitigated.

Keywords: couples' taxation, optimal commodity taxation, household bargaining

JEL Classification: H21, H31, D10

Suggested Citation

Cremer, Helmuth and Lozachmeur, Jean Marie and Roeder, Kerstin, Household Bargaining, Spouses' Consumption Patterns and the Design of Commodity Taxes. IZA Discussion Paper No. 10557, Available at SSRN: https://ssrn.com/abstract=2923642

Helmuth Cremer (Contact Author)

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 Liege - Economics, Business Administration and Social Sciences ( email )

Bld du Rectorat 7 Bat. B31
Liege B-4000
Belgium

Kerstin Roeder

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

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