The Tax Unit and Household Production / John Piggott, John Whalley.

Format:

Book

Author/Creator:

Piggott, John.

Contributor:

National Bureau of Economic Research.

Whalley, John.

Series:

Working Paper Series (National Bureau of Economic Research) no. w4820.

NBER working paper series no. w4820

Language:

English

Subjects (All):

Income tax.

Households--Taxation.

Households.

Bank reserves.

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1994.

Cambridge, Massachusetts : National Bureau of Economic Research, 1994.

Summary:

The conventional wisdom is that taxing individuals rather than households is superior from an efficiency point of view under progressive income taxation. This is because it leads to secondary workers, whose labour supply elasticity is high, being taxed at a lower marginal rate than primary workers, whose labour supply elasticity is low. But once household production is taken into account, things are more complicated since tax design should also not distort the input use of family members' time in household production. We use a simple general equilibrium model of household production parameterized using Australian data whose results clearly show that welfare effects can be either positive or negative when changing an existing income tax from an individual to a household basis. In so doing, we are able to investigate the comparative static effects of changing the tax unit from an individual to the household basis in a richer model than that used thus far in the literature, since we capture both Ramsey considerations from differential labour supply elasticities, and factor input distortions into household production. Our results challenge conventional wisdom, and suggest that household unit taxation deserves more sympathetic consideration than is currently the case.

Notes:

Print version record

August 1994.