Optimal Nonlinear Income Taxation for Noncooperative Couples

Takuya Obara () and Yoshitomo Ogawa ()
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Takuya Obara: Faculty of Commerce, Chuo University
Yoshitomo Ogawa: School of Economics, Kwansei Gakuin University

No 291, Discussion Paper Series from School of Economics, Kwansei Gakuin University

Abstract: This study examines optimal nonlinear income taxation for noncooperative couples who underprovide the household public good. In our framework, the income tax serves not only the role of improving the underprovision of the household public good but also addresses equity considerations and revenue collection. The optimal marginal tax rate is characterized by the well-known Mirrleesian ABC term and a new Pigouvian term. The Pigouvian term can be further decomposed into two parts. The first reflects the effects of improving the underprovision of the household public good, while the second relates to the expansion of the scope over which the government can adjust income taxes. The Pigouvian term results in the marginal tax rates on both female and male top earners being positive. Using U.S. wage data, our quantitative analysis shows that the existence of noncooperative behavior raises the optimal marginal tax rates at any wage level. This result suggests that the optimal marginal tax rates derived in previous studies, which ignore noncooperative behavior, may have been underestimated.

Keywords: Optimal nonlinear income taxation; noncooperative behavior; household public good (search for similar items in EconPapers)
JEL-codes: H21 J13 J16 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2025-04, Revised 2026-03
New Economics Papers: this item is included in nep-lab, nep-pbe and nep-pub
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http://192.218.163.163/RePEc/pdf/kgdp291.pdf Revised version, 2026 (application/pdf)

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