The Marriage Market, Inequality and the Progressivity of the Income Tax

Tim Obermeier ()

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: This paper studies how the progressivity of the income tax affects intra-household inequality and the marriage market. Tax progressivity increases the after-tax earnings of the lowerearning spouse and improves their bargaining position in marriage. This mechanism reduces inequality in consumption and leisure within households. In addition, tax progressivity can change who is single and who marries whom. I study these effects in an equilibrium search and matching model with intra-household bargaining, labor supply and savings. The model is calibrated to data from the Netherlands and used to study a hypothetical reform which increases progressivity by 40% relative to the current system. The reduction of intra-household inequality accounts for 24.77% of the reduction in inequality in private consumption due to the reform, and 11.43% of the reduction in inequality in utility from private and public consumption, leisure and home production. Changes in the composition of couples and singles, due to endogenous marriage and divorce, have small implications for inequality.

Keywords: Tax Progressivity; Intra-Household Bargaining; Equilibrium search; Assortative matching (search for similar items in EconPapers)
JEL-codes: E21 H20 J12 (search for similar items in EconPapers)
Pages: 54
Date: 2019-07
New Economics Papers: this item is included in nep-dge, nep-lab, nep-mac and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2019_109

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