Capital Taxes, Labor Taxes and the Household

Rigas Oikonomou and Christian Siegel

JODE - Journal of Demographic Economics, 2015, vol. 81, issue 3, 217-260

Abstract: We study the impact of capital and labor taxation in an economy where couples bargain over the intrahousehold allocation under limited commitment. In this framework more wealth improves commitment and gives rise to insurance gains within the household. Our theory motivates these gains by the empirical observation that wealth, in contrast to labor income, is a commonly held resource within households. Based on this observation we study whether eliminating capital taxes from the economy, and raising labor taxes to balance the government’s budget, may generate welfare gains to married households. We illustrate that the quantitative effects from this reform are rather small. We attribute the small effects to the life cycle pattern of wealth accumulation and to the impact of labor income taxes on household risk sharing: In particular, we show that higher labor taxes may make the limited commitment friction more severe, even though they may make the distribution of labor income more equitable within the household.

Keywords: Life cycles models; Incomplete financial markets; Tax reform; Intrahousehold allocations (search for similar items in EconPapers)
JEL-codes: D13 D52 E21 E62 H31 (search for similar items in EconPapers)
Date: 2015-09-01
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Citations: View citations in EconPapers (4)

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Journal Article: CAPITAL TAXES, LABOR TAXES AND THE HOUSEHOLD* (2015)
Working Paper: Capital Taxes, Labor Taxes and the Household (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvde:v:81:y:2015:i:3:p:217-260

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