Relational Contracts, Taxation and the Household

Patricia Apps () and Ray Rees

No 4189, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper applies the theory of relational contracts to make precise the idea that because households are engaged in a repeated non-cooperative game, Pareto efficient outcomes can be supported by self interest, given the specific pattern of specialisation and exchange which exists in the household. The household's choice of a particular solution from the resulting feasible set is found by the maximisation of a household welfare function, a generalisation of a suggestion originally made by Samuelson. This nests as special cases the objective functions used in currently popular models of households engaged in one-shot cooperative games. We take a specific example of such a household welfare function, characterise the determinants of the household utility distribution, and then apply the model to examine the effects of a move from joint to individual taxation. We show that on standard stylised facts, secondary earners are always better off absolutely, and define the conditions under which they will also be so relatively. This confirms the conclusions from models which concern themselves only with the across-household welfare distribution.

Keywords: welfare distribution; taxation; allocations; households; relational contracts (search for similar items in EconPapers)
JEL-codes: D11 D13 H21 H24 H31 J12 J16 K36 N30 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2009-05
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published - published in: CESifo Economic Studies, 2011, 57 (2), 245-258

Downloads: (external link)
https://docs.iza.org/dp4189.pdf (application/pdf)

Related works:
Journal Article: Relational Contracts, Taxation and the Household (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp4189

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().