Income Taxation and Marital Decisions

Hector Chade and Gustavo Ventura

No 35, Working Papers from Universidad de San Andres, Departamento de Economia

Abstract: We develop an equilibrium matching model with search frictions in order to analyze the effects that differential tax treatment of married and single individuals have on marriage formation and dissolution. Our main results are the following: (i) although an increase in the ‘marriage tax’ reduces the number of marriages, there is a two-sided search e¤ect that can substantially mitigate its impact on marriage formation and dissolution; (ii) an increase in the ‘marriage tax’ need not make both men and women more reluctant to get married; (iii) the e¤ects of a given change in the differential taxation on marital behavior depend on whether it is implemented via changes in the tax rates that singles face or in the tax rates that married people face; (iv) we compute an example to calculate the size of the two-sided search e¤ect and …nd that large changes in the marriage tax penalty can lead to small changes in the number of marriages and divorces. The example also reveals that the number of divorces can actually increase with a reduction in the ‘marriage tax’.

Keywords: Marriage Penalty; Marriage Tax; Two-Sided Search; Matching (search for similar items in EconPapers)
JEL-codes: D1 H2 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2001-06, Revised 2001-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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https://webacademicos.udesa.edu.ar/pub/econ/doc35.pdf First version, 2001 (application/pdf)

Related works:
Journal Article: Income Taxation and Marital Decisions (2005)
Working Paper: Income Taxation and Marital Decisions
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Persistent link: https://EconPapers.repec.org/RePEc:sad:wpaper:35

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