Taxation of Couples: a Mirrleesian Approach for Non-Unitary Households

Lucas de Lima and Carlos da Costa
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Lucas de Lima: Fundacao Getulio Vargas
Carlos da Costa: Fundação Getulio Vargas

No 627, 2016 Meeting Papers from Society for Economic Dynamics

Abstract: Can we still rely on the taxation and revelation principles to study optimal taxation if households do not behave as single agents as precribed by the unitary model? To address this question we take a collective view of households, for which choices are outcomes of Nash bargains. The mechanism plays the dual role of inducing the allocations given that spouses make joint decisions and determining through threat points the objective functions optimized by spouses. We show that the revelation principle applies, provided that one uses the appropriate defintion of a type. The same is not true for the taxation principle, which typically fails in this environment. Our findings should prove useful to other group decison problems such as group borrowing and cartel behavior for firms with economies of scope.

Date: 2016
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