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Intrahousehold inequality and the joint taxation of household earnings

Cassiano Alves (), Carlos Eugênio da Costa and Humberto Ataíde Moreira

No 825, FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) from EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil)

Abstract: We study the optimal design of nonlinear labor income tax for multiperson households. Each household consists of two workers with different productivity levels and unequal access to the family’s economic resources. We show how intrahousehold inequality, together with individual-oriented utilitarianism, generally leads to a misalignment between the household’s and government’s objectives, a state known as dissonance. We handle the multidimensionality that plagues the Mirrlees model by restricting preferences to be identical and iso-elastic and by focusing on taxes characterized by incomesplitting. This approach allows us to provide a complete solution for the screening problem, incorporate different degrees of assortative matching, and assess the role of dissonance in shaping the optimal tax schedule. We also investigate the welfare gains from gender-based policies.

Date: 2021-07-02
New Economics Papers: this item is included in nep-pbe and nep-pub
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