UNSPECIFIED (1996) The tax unit and household production. JOURNAL OF POLITICAL ECONOMY, 104 (2). pp. 398-418. ISSN 0022-3808

Full text not available from this repository.

Abstract

Under a progressive income tax, conventional wisdom is that taxing individuals rather than households is preferred from an efficiency point of view. The reason is that secondary workers, whose labor supply elasticity is high, will be taxed at a lower marginal rate than primary workers, whose labor supply elasticity is low. Here, we argue that once household production is taken into account, things are more complicated since tax design should also not distort the input of family members' time in household production. Factor input distortions as well as Ramsey considerations thus need to enter the choice of the tax unit. We provide a numerical example of an economy for which a move from an individual to a household basis in the income tax can be efficiency improving. We then use a general equilibrium model, parameterized using Australian tax rates and data, whose results clearly show that welfare gains can occur under changes from an individual to a household basis for an existing income tax. Our results thus challenge conventional wisdom and suggest that household unit taxation deserves more sympathetic consideration than is currently the case.

Item Type:	Journal Article
Subjects:	H Social Sciences > HC Economic History and Conditions
Journal or Publication Title:	JOURNAL OF POLITICAL ECONOMY
Publisher:	UNIV CHICAGO PRESS
ISSN:	0022-3808
Date:	April 1996
Volume:	104
Number:	2
Number of Pages:	21
Page Range:	pp. 398-418
Publication Status:	Published
URI:	http://wrap.warwick.ac.uk/id/eprint/18957

Data sourced from Thomson Reuters' Web of Knowledge

Request changes to a record

Actions (login required)

View Item