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The Taxation of Couples

Patricia Frances Apps () and Ray Rees ()
Additional contact information
Ray Rees: University of Munich

No 2910, IZA Discussion Papers from Institute for the Study of Labor (IZA)

Abstract: This paper is concerned with the question of how couples should be taxed. One reason for the importance of this issue is simply that the overwhelming majority of individuals live in households formed around couples, and so it could be argued that empirically, this is the single most important problem in personal income taxation. A second reason is that the economic theory of optimal taxation and tax reform, at least as it is presented in the mainstream literature, provides little guidance on this issue, resting as it does on models of the single person household. An old insight in the earlier public finance literature is that any discussion of the taxation of two-person households necessarily involves the recognition of the importance of household production. In this paper we try to show how a simple model of household production can be used to help the analysis of optimal taxation and tax reform, and to put the "conventional wisdom", which says that it is optimal to tax women on a separate, lower tax schedule than men, on a firmer basis. What emerges clearly from the analysis is how centrally important the relationship between productivity in household production and female labour supply really is, and how little we know about it empirically.

Keywords: labour supply; household production; optimal taxation (search for similar items in EconPapers)
JEL-codes: H21 D13 J22 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pbe and nep-pub
Date: 2007-07
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Published as "Optimal Taxation and Tax Reform for Two-Earner Households" in: CESifo Economic Studies, 2011, 57 (2), 283-304

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Working Paper: The Taxation of Couples (2007) Downloads
Working Paper: The Taxation of Couples (2007) Downloads
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