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Income Taxation and Marital Decisions

Author

Listed:
  • Hector Chade

    (Arizona State University)

  • Gustavo Ventura

    (University of Western Ontario)

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’.

Suggested Citation

  • Hector Chade & Gustavo Ventura, 2001. "Income Taxation and Marital Decisions," Working Papers 35, Universidad de San Andres, Departamento de Economia, revised Jun 2001.
    • Handle: RePEc:sad:wpaper:35
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    File URL: https://webacademicos.udesa.edu.ar/pub/econ/doc35.pdf
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    References listed on IDEAS

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    5. Chade, Hector, 2006. "Matching with noise and the acceptance curse," Journal of Economic Theory, Elsevier, vol. 129(1), pages 81-113, July.
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    12. Alm, James & Whittington, Leslie A., 1995. "Does the Income Tax Affect Marital Decisions?," National Tax Journal, National Tax Association, vol. 48(4), pages 565-72, December.
    13. Hector Chade & Gustavo Ventura, 2002. "Taxes and Marriage: A Two-Sided Search Analysis," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(3), pages 955-986, August.
    14. Chade, Hector, 2001. "Two-sided search and perfect segregation with fixed search costs," Mathematical Social Sciences, Elsevier, vol. 42(1), pages 31-51, July.
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    Citations

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    Cited by:

    1. Ek Susanne & Holmlund Bertil, 2010. "Family Job Search, Wage Bargaining, and Optimal Unemployment Insurance," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-27, May.
    2. Alexander Bick & Nicola Fuchs-Schündeln, 2018. "Taxation and Labour Supply of Married Couples across Countries: A Macroeconomic Analysis," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 85(3), pages 1543-1576.
    3. Doepke, M. & Tertilt, M., 2016. "Families in Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 1789-1891, Elsevier.
    4. Leturcq, Marion, 2012. "Will you civil union me? Taxation and civil unions in France," Journal of Public Economics, Elsevier, vol. 96(5), pages 541-552.
    5. Raffaella Santolini, 2021. "To Divorce Or Not To Divorce: Is This A Property Tax Problem?," Working Papers 451, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    6. Audrey Light & Yoshiaki Omori, 2009. "Economic Incentives and Family Formation," Working Papers 09-08, Ohio State University, Department of Economics.
    7. John Knowles & John Kennes, 2011. "Marriage, Fertility and Step-Families: An Equilibrium Analysis," 2011 Meeting Papers 227, Society for Economic Dynamics.
    8. Cremer, Helmuth & Barigozzi, Francesca & Roeder, Kerstin, 2017. "Until taxes do us part: tax penalties or bonuses and the marriage decision," CEPR Discussion Papers 12396, C.E.P.R. Discussion Papers.
    9. Audrey Light & Yoshiaki Omori, 2012. "Can Long-Term Cohabiting and Marital Unions be Incentivized?," Research in Labor Economics, in: Research in Labor Economics, pages 241-283, Emerald Group Publishing Limited.
    10. Nezih Guner & Remzi Kaygusuz & Gustavo Ventura, 2012. "Taxation and Household Labour Supply," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(3), pages 1113-1149.
    11. John A. Knowles, 2013. "Why are Married Men Working So Much? An Aggregate Analysis of Intra-Household Bargaining and Labour Supply," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 80(3), pages 1055-1085.
    12. Nancy R. Burstein, 2007. "Economic influences on marriage and divorce," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 26(2), pages 387-429.

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    More about this item

    Keywords

    Marriage Penalty; Marriage Tax; Two-Sided Search; Matching;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • D1 - Microeconomics - - Household Behavior

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