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Till taxes do us part: Tax penalties or bonuses and the marriage decision

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  • Barigozzi, Francesca
  • Cremer, Helmuth
  • Roeder, Kerstin

Abstract

The tax regimes applied to couples in many countries including the US, France, and Germany imply either a marriage penalty or a marriage bonus. We study how they affect the decision to get married by considering two potential spouses who play a marriage proposal game. At the end of the game they may get married, live together without formal marriage, or split up. Proposing (or getting married) implies a cost that can indicate strong love. The striking property we obtain is that a marriage bonus may actually reduce the probability that a couple gets married. If the bonus is sufficiently large, signaling is no longer informative, and a pooling equilibrium in which no couples get married remains. Similarly, a marriage penalty may increase marriages. The penalty may lead to a separating equilibrium with efficiency enhancing information transmission, which was otherwise not possible.

Suggested Citation

  • Barigozzi, Francesca & Cremer, Helmuth & Roeder, Kerstin, 2019. "Till taxes do us part: Tax penalties or bonuses and the marriage decision," European Economic Review, Elsevier, vol. 118(C), pages 37-50.
    • Handle: RePEc:eee:eecrev:v:118:y:2019:i:c:p:37-50
    DOI: 10.1016/j.euroecorev.2019.05.001
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    2. Rainer Niemann & Mariana Sailer, 2023. "Is analytical tax research alive and kicking? Insights from 2000 until 2022," Journal of Business Economics, Springer, vol. 93(6), pages 1149-1212, August.

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    More about this item

    Keywords

    Marriage penalty; Marriage bonus; Proposal game; Signaling;
    All these keywords.

    JEL classification:

    • J12 - Labor and Demographic Economics - - Demographic Economics - - - Marriage; Marital Dissolution; Family Structure
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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