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

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.

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• Until taxes do us part: tax penalties or bonuses and the marriage decision. (deposited 17 Apr 2018 07:51)
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