The Optimal Income Taxation of Couples

Emmanuel Saez, Claus Kreiner and Henrik Kleven

No 5978, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper analyzes the optimal income tax treatment of couples. Each couple is modelled as a single rational economic agent supplying labor along two dimensions: primary and secondary earnings. We consider fully general joint income tax systems. Separate taxation is never optimal if social welfare depends on total couple incomes. In a model where secondary earners make only a binary work decision (work or not work), we demonstrate that the marginal tax rate of the primary earner is lower when the spouse works. As a result, the tax distortion on the secondary earner decreases with the earnings of the primary earner and actually vanishes to zero asymptotically. Such negative jointness is optimal because redistribution from two-earner toward one-earner couples is more valuable when primary earner income is lower. We also consider a model where both spouses display intensive labor supply responses. In that context, we show that, starting from the optimal separable tax schedules, introducing some negative jointness is always desirable. Numerical simulations suggest that, in that model, it is also optimal for the marginal tax rate on one earner to decrease with the earnings of his/her spouse. We argue that many actual redistribution systems, featuring family-based transfers combined with individually-based taxes, generate schedules with negative jointness.

Keywords: Couples taxation; Optimal income tax (search for similar items in EconPapers)
JEL-codes: H21 (search for similar items in EconPapers)
Date: 2006-12
New Economics Papers: this item is included in nep-pbe and nep-pub
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Citations: View citations in EconPapers (22)

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Related works:
Journal Article: The Optimal Income Taxation of Couples (2009)
Working Paper: The Optimal Income Taxation of Couples (2006)
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