Econometrica: Jan 2019, Volume 87, Issue 1

Optimal Taxation, Marriage, Home Production, and Family Labor Supply

https://doi.org/10.3982/ECTA14528
p. 291-326

Georgeā€Levi Gayle, Andrew Shephard

An empirical approach to optimal income taxation design is developed within an equilibrium collective marriage market model with imperfectly transferable utility. Taxes distort time allocation decisions, as well as marriage market outcomes, and the within household decision process. Using data from the American Community Survey and American Time Use Survey, we structurally estimate our model and explore empirical design problems. We allow taxes to depend upon marital status, with the form of tax jointness for married couples unrestricted. We find that the optimal tax system for married couples is characterized by negative jointness, although the welfare gains from jointness are modest. These welfare gains are then shown to be increasing in the gender wage gap, with taxes here, as in the case of gender based taxation, providing an instrument to address within household inequality.



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Supplement to "Optimal Taxation, Marriage, Home Production, and Family Labour Supply"

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Supplement to "Optimal Taxation, Marriage, Home Production, and Family Labour Supply"

In these online appendices we (i) provide formal proofs of Proposition 1–5; (ii) describe the iterative algorithm and solution approximation methods for calculating the marriage market equilibrium; (iii) describe our empirical tax and transfer schedule implementation; (iv) describe the set of targeted estimation moments; (v) present additional tables and simulation results.

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