Couples and the Elasticity

The vast majority of empirical studies use information about individuals. Where couples are taxed jointly and income splitting occurs, such as in the US, both partners face a common marginal tax rate and studies proceed by treating the family as a single taxpaying unit. In countries where individuals in couples are taxed separately, no consideration is usually given to the fact that some kind of joint decision process may be involved. However, a member of a couple might be expected to respond to changes in the other person's marginal tax rate. However, information about partners' incomes is rarely available. This chapter concentrates on the taxable income relationships involved when individuals within couple households are taxed separately as opposed to jointly. It explores the implications of joint decision-making by couples and the possible bias that may result from concentrating on individuals and neglecting whether or not they are members of a sharing household in which each member may face a different marginal tax rate.