Taxing Couples

Abstract

In our study, we are concerned with an economy comprising two-person households with individual utilities and household production. We investigate the consequences which a marginal revenue neutral tax reform entails on the members of such households. General conditions are derived under which such a tax reform makes a household better off. We also discuss some stylised facts established in recent empirical studies on labour supply. In conjunction with these stylised facts, our findings allow for simple recommendations in issues of actual social policy such as income splitting and the support of families.