Optimal Income Taxation for the Alleviation of Working-Poverty When Domestic Work is Rewarded

Xi Chen (), Ioana Salagean () and Benteng Zou
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Ioana Salagean: STATEC

DEM Discussion Paper Series from Department of Economics at the University of Luxembourg

Abstract: The increase in income needed for working households to escape relative poverty may be achieved either by households supplying more hours of paid work on the labor market, or by policy makers adjusting income taxation, minimum wages and social transfers targeted at working households. While past work has given consid- erable attention to the latter policy instruments, theoretical work on how income taxation could minimize working-poverty is scarce. Our study aims to fill this gap. Unlike the traditional optimal income taxation literature, which considers that households allocate time only between consumption and leisure, we explicitly model households’ decisions as including domestic work, which is a social contri- bution and should be rewarded. This new framework highlights (i) the importance of emphasizing the difference between domestic work and real leisure and, (ii) the policy implications of non-market time allocation.

Keywords: Working-poverty; time allocation; optimal income taxation; household-public goods. (search for similar items in EconPapers)
JEL-codes: H21 H24 I32 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-pbe and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:luc:wpaper:16-01

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