The Optimal Income Taxation of Couples

Henrik Jacobsen Kleven, Claus Kreiner and Emmanuel Saez

No 12685, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper analyzes the optimal income tax treatment of couples. Each couple is modelled as a single rational economic agent supplying labor along two dimensions: primary and secondary earnings. We consider fully general joint income tax systems. Separate taxation is never optimal if social welfare depends on total couple incomes. In a model where secondary earners make only a binary work decision (work or not work), we demonstrate that the marginal tax rate of the primary earner is lower when the spouse works. As a result, the tax distortion on the secondary earner decreases with the earnings of the primary earner and actually vanishes to zero asymptotically. Such negative jointness is optimal because redistribution from two-earner toward one-earner couples is more valuable when primary earner income is lower. We also consider a model where both spouses display intensive labor supply responses. In that context, we show that, starting from the optimal separable tax schedules, introducing some negative jointness is always desirable. Numerical simulations suggest that, in that model, it is also optimal for the marginal tax rate on one earner to decrease with the earnings of his/her spouse. We argue that many actual redistribution systems, featuring family-based transfers combined with individually-based taxes, generate schedules with negative jointness.

JEL-codes: H21 (search for similar items in EconPapers)
Date: 2006-11
New Economics Papers: this item is included in nep-pbe and nep-pub
Note: PE
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Citations: View citations in EconPapers (21)

Published as Henrik Jacobsen Kleven & Claus Thustrup Kreiner & Emmanuel Saez, 2009. "The Optimal Income Taxation of Couples," Econometrica, Econometric Society, vol. 77(2), pages 537-560, 03.

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Related works:
Journal Article: The Optimal Income Taxation of Couples (2009)
Working Paper: The Optimal Income Taxation of Couples (2006)
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