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Capital Taxes, Labor Taxes and the Household

Oikonomou, Rigas, Siegel, Christian (2015) Capital Taxes, Labor Taxes and the Household. Journal of Demographic Economics, 81 (3). pp. 217-260. ISSN 2054-0892. E-ISSN 2054-0906. (doi:10.1017/dem.2015.7)

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https://doi.org/10.1017/dem.2015.7

Abstract

We study the impact of capital and labor taxation in an economy where couples bargain over the intrahousehold allocation under limited commitment. In this framework more wealth improves commitment and gives rise to insurance gains within the household. Our theory motivates these gains by the empirical observation that wealth, in contrast to labor income, is a commonly held resource within households. Based on this observation we study whether eliminating capital taxes from the economy, and raising labor taxes to balance the government’s budget, may generate welfare gains to married households. We illustrate that the quantitative effects from this reform are rather small. We attribute the small effects to the life cycle pattern of wealth accumulation and to the impact of labor income taxes on household risk sharing: In particular, we show that higher labor taxes may make the limited commitment friction more severe, even though they may make the distribution of labor income more equitable within the household.

Item Type: Article
DOI/Identification number: 10.1017/dem.2015.7
Additional information: also available in the University of Exeter's repository (https://ore.exeter.ac.uk/repository/handle/10871/17736)
Uncontrolled keywords: Life cycle models, incomplete financial markets, tax reform, intrahousehold allocations
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculties > Social Sciences > School of Economics
Depositing User: Christian Siegel
Date Deposited: 09 Jan 2017 15:16 UTC
Last Modified: 29 May 2019 18:31 UTC
Resource URI: https://kar.kent.ac.uk/id/eprint/59803 (The current URI for this page, for reference purposes)
Siegel, Christian: https://orcid.org/0000-0002-1686-8686
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