Skip to main content Accesibility Help
×
×
Home

CAPITAL TAXES, LABOR TAXES AND THE HOUSEHOLD*

  • Rigas Oikonomou (a1) and Christian Siegel (a2)
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.

  • View HTML
    • Send article to Kindle

      To send this article to your Kindle, first ensure no-reply@cambridge.org is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about sending to your Kindle. Find out more about sending to your Kindle.

      Note you can select to send to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be sent to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

      Find out more about the Kindle Personal Document Service.

      CAPITAL TAXES, LABOR TAXES AND THE HOUSEHOLD*
      Available formats
      ×
      Send article to Dropbox

      To send this article to your Dropbox account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Dropbox.

      CAPITAL TAXES, LABOR TAXES AND THE HOUSEHOLD*
      Available formats
      ×
      Send article to Google Drive

      To send this article to your Google Drive account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Google Drive.

      CAPITAL TAXES, LABOR TAXES AND THE HOUSEHOLD*
      Available formats
      ×
Copyright
Footnotes
Hide All
*

We are grateful to the editor David de la Croix, and to two anonymous referees for useful comments and suggestions. We also benefited from the comments of Francesco Caselli, Winfried Koeniger, John Knowles, Jochen Mankart, Albert Marcet, Rachel Ngai, Chris Pissarides, Marc Santugini, participants at the LSE macroeconomics seminar and the Autonoma macro lunch. Oikonomou is grateful to the Fonds de Recherche du Quebec Societé et Culture for funding.

Footnotes
References
Hide All
Adda, Jérôme. and Cooper, Russell W. (2003) Dynamic Economics: Quantitative Methods and Applications. MIT Press. Cambridge, US. ISBN 9780262012010.
Aiyagari, S. Rao and McGrattan, Ellen R. (October 1998) The optimum quantity of debt. Journal of Monetary Economics 42 (3), 447469.
Alesina, Alberto, Ichino, Andrea and Karabarbounis, Loukas (May 2011) Gender-based taxation and the division of family chores. American Economic Journal: Economic Policy 3 (2), 140.
Apps, Patricia F. and Rees, Ray (1988) Taxation and the household. Journal of Public Economics 35 (3), 355369.
Apps, Patricia F. and Rees, Ray (August 1999) On the taxation of trade within and between households. Journal of Public Economics 73 (2), 241263.
Apps, Patricia F. and Rees, Ray (2011) Optimal taxation and tax reform for two-earner households. CESifo Economic Studies 57 (2), 283304.
Arias, Elizabeth (2010) United States Life Tables, 2006. National vital statistics reports vol. 58 no 21, National Center for Health Statistics, Hyattsville, MD.
Attanasio, Orazio and Ríos-Rull, José-Víctor (June 2000) Consumption smoothing in island economies: Can public insurance reduce welfare? European Economic Review 44 (7), 12251258.
Attanasio, Orazio P. and Weber, Guglielmo (December 1995) Is consumption growth consistent with intertemporal optimization? evidence from the consumer expenditure survey. Journal of Political Economy 103 (6), 1121–57.
Blundell, Richard and Etheridge, Ben (2010) Consumption, income and earnings inequality in Britain. Review of Economic Dynamics 13 (1), 76102. Special issue: Cross-Sectional Facts for Macroeconomists.
Burnside, Craig (1999) Discrete state-space methods for the study of dynamic economies. In Marimon, Ramon and Scott, Andrew (eds.), Computational Methods for the Study of Dynamic Economies, pp. 138. Oxford University Press. Oxford, UK.
Chiappori, Pierre-André (1988) Rational household labor supply. Econometrica 56 (1), 6390.
Chiappori, Pierre-André (1992) Collective labor supply and welfare. Journal of Political Economy 100 (3), 437467.
Conesa, Carlos, Juan, Kitao, Sagiri and Krueger, Dirk (March 2009) Taxing capital? Not a bad idea after all! American Economic Review 99 (1), 2548.
Conesa, Juan Carlos and Krueger, Dirk (2006) On the optimal progressivity of the income tax code. Journal of Monetary Economics 53 (7), 14251450.
Cooley, Thomas, Marimon, Ramon and Quadrini, Vincenzo (August 2004) Aggregate consequences of limited contract enforceability. Journal of Political Economy 112 (4), 817847.
Cubeddu, Luis and Ríos-Rull, José-Víctor (1997) Marital risk and capital accumulation. Staff Report 235, Federal Reserve Bank of Minneapolis.
Domeij, David and Heathcote, Jonathan (2004) On the distributional effects of reducing capital taxes. International Economic Review 45 (2), 523554.
Erosa, Andrés and Gervais, Martin (2002) Optimal taxation in life-cycle economies. Journal of Economic Theory 105 (2), 338369.
Fuster, Luisa, Imrohoroglu, Ayse and Imrohoroglu, Selahattin (2008) Altruism, incomplete markets, and tax reform. Journal of Monetary Economics 55 (1), 6590.
Guner, Nezih and Knowles, John (2007) Marital instability and the distribution of wealth. mimeo.
Guner, Nezih, Kaygusuz, Remzi and Ventura, Gustavo (January 2012a) Taxation and household labor supply. Review of Economic Studies 79 (1), 137.
Guner, Nezih, Kaygusuz, Remzi and Ventura, Gustavo (January 2012b) Taxing women: A macroeconomic analysis. Journal of Monetary Economics 59 (1), 111128.
Hansen, Gary D. (1993) The cyclical and secular behaviour of the labour input: Comparing efficiency units and hours worked. Journal of Applied Econometrics 8 (1), 7180.
Hyslop, Dean R. (2001) Rising U.S. earnings inequality and family labor supply: The covariance structure of intrafamily earnings. American Economic Review 91 (4), 755777.
Kehoe, Patrick J. and Perri, Fabrizio (May 2002) International business cycles with endogenous incomplete markets. Econometrica 70 (3), 907928.
Kocherlakota, Narayana R. (October 1996) Implications of efficient risk sharing without commitment. Review of Economic Studies 63 (4), 595609.
Ligon, Ethan, Thomas, Jonathan P. and Worrall, Tim (April 2000) Mutual insurance, individual savings, and limited commitment. Review of Economic Dynamics 3 (2), 216246.
Ligon, Ethan, Thomas, Jonathan P. and Worrall, Tim (January 2002) Informal insurance arrangements with limited commitment: Theory and evidence from village economies. Review of Economic Studies 69 (1), 209–44.
Marcet, Albert and Marimon, Ramon (September 1994) Recursive contracts. Economics working papers 337, Department of Economics and Business, Universitat Pompeu Fabra.
Mazzocco, Maurizio and Ruiz, Claudia and Yamaguchi, Shintaro (2007) Labor supply, wealth dynamics, and marriage decisions. Mimeo.
Meghir, Costas and Weber, Guglielmo (September 1996) Intertemporal nonseparability or borrowing restrictions? A disaggregate analysis using a U.S. consumption panel. Econometrica 64 (5), 1151–81.
Storesletten, Kjetil, Telmer, Chris I. and Yaron, Amir (2004) Cyclical dynamics in idiosyncratic labor market risk. Journal of Political Economy 112 (3), 695717.
Voena, Alessandra (2015) Yours, mine and ours: Do divorce laws affect the intertemporal behavior of married couples? American Economic Review, forthcoming.
Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Journal of Demographic Economics
  • ISSN: 2054-0892
  • EISSN: 2054-0906
  • URL: /core/journals/journal-of-demographic-economics
Please enter your name
Please enter a valid email address
Who would you like to send this to? *
×

Keywords

Type Description Title
PDF
Supplementary materials

Oikonomou and Siegel supplementary material
Online Appendix

 PDF (329 KB)
329 KB
UNKNOWN
Supplementary materials

Oikonomou and Siegel supplementary material
Oikonomou and Siegel supplementary material 1

 Unknown (170 KB)
170 KB

Metrics

Full text views

Total number of HTML views: 0
Total number of PDF views: 0 *
Loading metrics...

Abstract views

Total abstract views: 0 *
Loading metrics...

* Views captured on Cambridge Core between <date>. This data will be updated every 24 hours.

Usage data cannot currently be displayed