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

Barigozzi, Francesca, Cremer, Helmuth and Roeder, Kerstin (2019) Till taxes do us part: tax penalties or bonuses and the marriage decision. European Economic Review, 118. pp. 37-50.

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Official URL: http://tse-fr.eu/pub/122998

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. Proposing (or getting married) implies a cost that 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, signaling is no longer informative, and a pooling equilibrium in which no couples get married remains. Similarly, a marriage penalty may increase marriages. The penalty may lead to a separating equilibrium with efficiency enhancing information transmission, which was otherwise not possible.

Item Type: Article
Language: English
Date: September 2019
Refereed: Yes
Uncontrolled Keywords: Marriage penalty, Marriage bonus, Proposal game, Signaling
JEL codes: H31 - Household
H82 - Governmental Property
J12 - Marriage; Marital Dissolution; Family Structure
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 22 May 2019 07:42
Last Modified: 19 Jul 2019 14:45
OAI ID: oai:tse-fr.eu:122998
URI: http://publications.ut-capitole.fr/id/eprint/32483

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