Tax planning of married couples and intra-household income inequality

Thiess Buettner, Katharina Erbe and Veronika Grimm
Authors registered in the RePEc Author Service: Thiess Büttner

Journal of Public Economics, 2019, vol. 179, issue C

Abstract: This paper examines tax planning of married couples under separate taxation. It shows that concerns about the intra-household income distribution prevent couples from minimizing tax payments. The empirical analysis exploits a specific feature of the German tax system, which allows married couples to save taxes by deviating from the default symmetric payroll-tax treatment and assigning favorable tax treatment to the primary earner and unfavorable tax treatment to the secondary earner. Based on a representative random sample of individual tax files, we find that a couple is less likely to choose the tax-minimizing treatment if tax planning is associated with a larger decline of the net-of-tax income of the secondary earner. This applies regardless of whether the husband or the wife is the main earner. However, couples where the wife is the main earner are generally more reluctant to assign the more favorable tax treatment to the wife.

Keywords: Tax planning; Tax avoidance; Tax arbitrage; Married couples; Separate taxation; Family decision making; Gender differences; Payroll tax; Individual tax returns (search for similar items in EconPapers)
JEL-codes: D13 H26 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:179:y:2019:i:c:s0047272719301070

DOI: 10.1016/j.jpubeco.2019.104048

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