IDEAS home Printed from https://ideas.repec.org/a/eee/ecmode/v83y2019icp384-393.html
   My bibliography  Save this article

Optimal income taxation when couples have endogenous bargaining power

Author

Listed:
  • Komura, Mizuki
  • Ogawa, Hikaru
  • Ogawa, Yoshitomo

Abstract

This study examines the optimal income taxation for a two-earner household, where the couple bargains over their private goods consumption and time allocation between work and leisure. In the model, bargaining power is determined endogenously by the income gap between the two earners. Conventional studies have shown that the higher income tax rate should be imposed on the individual with the smaller wage elasticity, typically the individual with the higher productivity. In contrast to conventional argument, this study shows that the optimal tax rate on the household member with the higher productivity is lower than that of the individual with the lower productivity if the required tax revenue is relatively small and the influence of the gender income gap on the power balance of the couple is moderate. This is because such a tax structure encourages the labor supply of the individual with the higher productivity to mitigate the decrease in the household’s consumption induced by income taxation.

Suggested Citation

  • Komura, Mizuki & Ogawa, Hikaru & Ogawa, Yoshitomo, 2019. "Optimal income taxation when couples have endogenous bargaining power," Economic Modelling, Elsevier, vol. 83(C), pages 384-393.
    • Handle: RePEc:eee:ecmode:v:83:y:2019:i:c:p:384-393
    DOI: 10.1016/j.econmod.2019.09.021
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0264999318317310
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econmod.2019.09.021?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Patricia Apps & Ray Rees, 2018. "Optimal family taxation and income inequality," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(5), pages 1093-1128, October.
    2. Boskin, Michael J. & Sheshinski, Eytan, 1983. "Optimal tax treatment of the family: Married couples," Journal of Public Economics, Elsevier, vol. 20(3), pages 281-297, April.
    3. Helmuth Cremer & Jean-Marie Lozachmeur & Kerstin Roeder, 2021. "Household bargaining, spouses’ consumption patterns and the design of commodity taxes," Oxford Economic Papers, Oxford University Press, vol. 73(1), pages 225-247.
    4. James Feyrer & Bruce Sacerdote & Ariel Dora Stern, 2008. "Will the Stork Return to Europe and Japan? Understanding Fertility within Developed Nations," Journal of Economic Perspectives, American Economic Association, vol. 22(3), pages 3-22, Summer.
    5. Florence Jaumotte, 2003. "Female Labour Force Participation: Past Trends and Main Determinants in OECD Countries," OECD Economics Department Working Papers 376, OECD Publishing.
    6. Meier, Volker & Rainer, Helmut, 2015. "Pigou meets Ramsey: Gender-based taxation with non-cooperative couples," European Economic Review, Elsevier, vol. 77(C), pages 28-46.
    7. Duncan Thomas, 1990. "Intra-Household Resource Allocation: An Inferential Approach," Journal of Human Resources, University of Wisconsin Press, vol. 25(4), pages 635-664.
    8. Aura, Saku, 2005. "Does the balance of power within a family matter? The case of the Retirement Equity Act," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1699-1717, September.
    9. Alberto Alesina & Andrea Ichino & Loukas Karabarbounis, 2011. "Gender-Based Taxation and the Division of Family Chores," American Economic Journal: Economic Policy, American Economic Association, vol. 3(2), pages 1-40, May.
    10. François Bourguignon & Martin Browning & Pierre-André Chiappori & Valérie Lechene, 1993. "Intra Household Allocation of Consumption: A Model and some Evidence from French Data," Annals of Economics and Statistics, GENES, issue 29, pages 137-156.
    11. Angela Cipollone & Eleonora Patacchini & Giovanna Vallanti, 2014. "Female labour market participation in Europe: novel evidence on trends and shaping factors," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 3(1), pages 1-40, December.
    12. Alessandra Fogli & Raquel Fernandez, 2009. "Culture: An Empirical Investigation of Beliefs, Work, and Fertility," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 146-177, January.
    13. Cremer, Helmuth & Lozachmeur, Jean-Marie & Maldonado, Dario & Roeder, Kerstin, 2016. "Household bargaining and the design of couples’ income taxation," European Economic Review, Elsevier, vol. 89(C), pages 454-470.
    14. Manser, Marilyn & Brown, Murray, 1980. "Marriage and Household Decision-Making: A Bargaining Analysis," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(1), pages 31-44, February.
    15. Apps, Patricia F. & Rees, Ray, 1988. "Taxation and the household," Journal of Public Economics, Elsevier, vol. 35(3), pages 355-369, April.
    16. Kaushik Basu, 2006. "Gender and Say: a Model of Household Behaviour with Endogenously Determined Balance of Power," Economic Journal, Royal Economic Society, vol. 116(511), pages 558-580, April.
    17. repec:adr:anecst:y:1993:i:29:p:07 is not listed on IDEAS
    18. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 38(2), pages 175-208.
    19. Chiappori, Pierre-Andre, 1988. "Rational Household Labor Supply," Econometrica, Econometric Society, vol. 56(1), pages 63-90, January.
    20. Shelley A. Phipps & Peter S. Burton, 1998. "What’s Mine is Yours? The Influence of Male and Female Incomes on Patterns of Household Expenditure," Economica, London School of Economics and Political Science, vol. 65(260), pages 599-613, November.
    21. Apps, Patricia & Rees, Ray, 2018. "Optimal family taxation and income inequality," Munich Reprints in Economics 62832, University of Munich, Department of Economics.
    22. Shelly J. Lundberg & Robert A. Pollak & Terence J. Wales, 1997. "Do Husbands and Wives Pool Their Resources? Evidence from the United Kingdom Child Benefit," Journal of Human Resources, University of Wisconsin Press, vol. 32(3), pages 463-480.
    23. Chiappori, Pierre-Andre, 1992. "Collective Labor Supply and Welfare," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 437-467, June.
    24. T. Paul Schultz, 1990. "Testing the Neoclassical Model of Family Labor Supply and Fertility," Journal of Human Resources, University of Wisconsin Press, vol. 25(4), pages 599-634.
    25. Raquel Fernández & Alessandra Fogli & Claudia Olivetti, 2004. "Mothers and Sons: Preference Formation and Female Labor Force Dynamics," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(4), pages 1249-1299.
    26. McElroy, Marjorie B & Horney, Mary Jean, 1981. "Nash-Bargained Household Decisions: Toward a Generalization of the Theory of Demand," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 22(2), pages 333-349, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bellido, Héctor & Marcén, Miriam, 2020. "On the relationship between body mass index and marital dissolution," Economic Modelling, Elsevier, vol. 91(C), pages 326-340.
    2. Wang, Ruiting & Xu, Gang, 2020. "Can child allowances improve fertility in a gender discrimination economy?," Economic Modelling, Elsevier, vol. 93(C), pages 162-174.
    3. Takuya Obara & Yoshitomo Ogawa, 2020. "Optimal Taxation in an Endogenous Fertility Model with Non-Cooperative Couples," Discussion Paper Series 211, School of Economics, Kwansei Gakuin University, revised Jan 2021.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Takuya Obara & Yoshitomo Ogawa, 2020. "Optimal Taxation in an Endogenous Fertility Model with Non-Cooperative Couples," Discussion Paper Series 211, School of Economics, Kwansei Gakuin University, revised Jan 2021.
    2. Mizuki Komura, 2013. "Tax reform and endogenous gender bargaining power," Review of Economics of the Household, Springer, vol. 11(2), pages 175-192, June.
    3. Alberto Alesina & Andrea Ichino & Loukas Karabarbounis, 2011. "Gender-Based Taxation and the Division of Family Chores," American Economic Journal: Economic Policy, American Economic Association, vol. 3(2), pages 1-40, May.
    4. Alam, Saad, 2012. "The Effect of Gender-Based Returns to Borrowing on Intra-Household Resource Allocation in Rural Bangladesh," World Development, Elsevier, vol. 40(6), pages 1164-1180.
    5. Kota Ogasawara & Mizuki Komura, 2022. "Consequences of war: Japan’s demographic transition and the marriage market," Journal of Population Economics, Springer;European Society for Population Economics, vol. 35(3), pages 1037-1069, July.
    6. Laurens CHERCHYE & Thomas DEMUYNCK & Bram DE ROCK, 2010. "Noncooperative household consumption with caring," Working Papers of Department of Economics, Leuven ces10.34, KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven.
    7. Laurens Cherchye & Thomas Demuynck & Bram De Rock, 2011. "Revealed Preference Analysis of Non‐Cooperative Household Consumption," Economic Journal, Royal Economic Society, vol. 121(555), pages 1073-1096, September.
    8. Chiappori, Pierre-André & Donni, Olivier, 2006. "Les modèles non unitaires de comportement du ménage : un survol de la littérature," L'Actualité Economique, Société Canadienne de Science Economique, vol. 82(1), pages 9-52, mars-juin.
    9. Donni, Olivier & Molina, José Alberto, 2018. "Household Collective Models: Three Decades of Theoretical Contributions and Empirical Evidence," IZA Discussion Papers 11915, Institute of Labor Economics (IZA).
    10. Aline Bütikofer & Michael Gerfin, 2017. "The economies of scale of living together and how they are shared: estimates based on a collective household model," Review of Economics of the Household, Springer, vol. 15(2), pages 433-453, June.
    11. Rong, Rong & Gnagey, Matthew & Grijalva, Therese, 2018. "“The less you Discount, the more it shows you really care”: Interpersonal discounting in households," Journal of Economic Behavior & Organization, Elsevier, vol. 154(C), pages 1-23.
    12. Agnes R. Quisumbing & John A. Maluccio, 2003. "Resources at Marriage and Intrahousehold Allocation: Evidence from Bangladesh, Ethiopia, Indonesia, and South Africa," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(3), pages 283-327, July.
    13. Xu, Zeyu, 2007. "A survey on intra-household models and evidence," MPRA Paper 3763, University Library of Munich, Germany.
    14. Patricia Apps & Ray Rees, 2022. "Inequality measurement and tax/transfer policy," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(4), pages 953-984, August.
    15. Matthias Doepke & Michèle Tertilt, 2019. "Does female empowerment promote economic development?," Journal of Economic Growth, Springer, vol. 24(4), pages 309-343, December.
    16. Miriam Beblo & Denis Beninger, 2012. "Do husbands and wives pool their incomes? Experimental evidence," Working Papers of BETA 2012-10, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    17. Rubalcava, L. & Thomas, D., 2000. "Family Bargaining and Welfare," Papers 00-10, RAND - Labor and Population Program.
    18. Apps, Patricia, 2003. "Gender, Time Use and Models of the Household," IZA Discussion Papers 796, Institute of Labor Economics (IZA).
    19. Martin Browning & Valérie Lechene, 2001. "Caring and Sharing: Tests Between Alternative Models of Intra-household Allocation," Discussion Papers 01-07, University of Copenhagen. Department of Economics.
    20. Chiappori, Pierre-André & Donni, Olivier, 2009. "Non-unitary Models of Household Behavior: A Survey of the Literature," IZA Discussion Papers 4603, Institute of Labor Economics (IZA).

    More about this item

    Keywords

    Optimal income taxation; Endogenous bargaining power;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • J16 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Gender; Non-labor Discrimination
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:83:y:2019:i:c:p:384-393. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30411 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.