Until taxes do us part: tax penalties or bonuses and the marriage decision

Barigozzi, Francesca, Cremer, Helmuth and Roeder, Kerstin (2017) Until taxes do us part: tax penalties or bonuses and the marriage decision. TSE Working Paper, n. 17-858, Toulouse

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Official URL: http://tse-fr.eu/pub/32179

Abstract

The tax regimes applied to couples in many countries including the US, France, and Germany imply either a marriage penalty or a marriage bonus. We study how they affect the decision to get married by considering two potential spouses who play a marriage proposal game. At the end of the game they may get married, live together without formal marriage, or split up. In this signaling game, proposing (or getting married) is costly but can indicate strong love. The striking property we obtain is that a marriage bonus may actually reduce the probability that a couple gets married. If the bonus is sufficiently large, the signaling mechanism breaks down, and only a pooling equilibrium in which fewer couples get married remains. Similarly, a marriage penalty may increase the marriage probability. Specifically, the penalty may lead to a separating equilibrium with efficiency enhancing information transmission, which was otherwise not possible. Our results also imply that marriage decisions in the laissez-faire are not necessarily privately optimal. In some cases a bonus or a penalty may effectively make the marriage decision more efficient; it may increase the number of efficient marriages that otherwise may not be concluded.

Item Type: Monograph (Working Paper)
Language: English
Date: November 2017
Place of Publication: Toulouse
Uncontrolled Keywords: marriage penalty, marriage bonus, proposal game, signaling
JEL codes: D82 - Asymmetric and Private Information
H31 - Household
J12 - Marriage; Marital Dissolution; Family Structure
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 17 Apr 2018 07:51
Last Modified: 17 Apr 2018 07:51
OAI ID: oai:tse-fr.eu:32179
URI: http://publications.ut-capitole.fr/id/eprint/25740

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