rational household labor supply traditionally household behavior is derived from the maximization of a unique utility function in this paper we propose an alternative approach in which the household is modeled as a two member collectivity taking pareto efficient decisions the consequences of this assumption are analyzed in a three good model in which only total consumption and each member s labor supply are observable if the agents are assumed egoistic i e they are only concerned with their own leisure and consumption it is possible to derive falsifiable conditions upon household labor supplies from both a parametric and nonparametric viewpoint if alternatively agents are altruistic restrictions obtain in the nonparametric context useful interpretation stems from the comparison with the characterization of aggregate demand for a private good economy

on the impact of heterogeneity on indeterminacy some recent research indicates that the occurrence of indeterminacy in models with externalities may be overstated because these models ignore agents heterogeneity we consider a neoclassical two sector growth model with technological externalities agents are heterogeneous with respect to their shares of the initial stock of capital and in labor endowments we find that the sign of the effect of inequality on indeterminacy is not pinned down by the standard properties of preferences however when the inverse of absolute risk aversion is a convex respectively concave function homogeneity heterogeneity tends to neutralize the external effects and eliminate indeterminacy

income and outcomes a structural model of intrahousehold allocation there is evidence from several sources that one cannot treat many person households as a single decision maker if this is the case then factors such as the relative incomes of the household members may affect the final allocation decisions made by the household we develop a method of identifying how incomes affect outcomes given conventional family expenditure data the basic assumption we make is that household decision processes lead to efficient outcomes we apply our method to a sample of canadian couples with no children we find that the final allocations of expenditures on each partner depend significantly on their relative incomes and ages and on the level of lifetime wealth

multi dimensional screening a user s guide abstract multi dimensional screening models have many potential applications but economists have so far been hindered by the considerable technical difficulties involved in their resolution this paper studies the simplest formulation of the general screening model and we provide a complete solution to this case we then show how this model can be applied to multi product nonlinear pricing and to multi product monopoly regulation finally we discuss how the model has been applied to other economic situations of interest including auction design and optimal taxation

using elasticities to derive optimal income tax rates this paper derives optimal income tax formulas using compensated and uncompensated elasticities of earnings with respect to tax rates a simple formula for the high income optimal tax rate is obtained as a function of these elasticities and the thickness of the top tail of the income distribution in the general non linear income tax problem this method using elasticities shows precisely how the different economic effects come into play and which are the key relevant parameters in the optimal income tax formulas of mirrlees the optimal non linear tax rate formulas are expressed in terms of elasticities and the shape of the income distribution these formulas are implemented numerically using empirical earning distributions and a range of realistic elasticity parameters

measuring economic efficiency using inverse optimum weights abstract this paper provides a method to measure the traditional kaldor hicks notion of economic efficiency when taxes affect behavior in contrast to traditional unweighted surplus measuring efficiency requires weighting individual benefits or surplus by the marginal cost to the government of providing a 1 transfer at each income level these weights correspond to the solution to the inverse optimum program in the optimal tax literature they are the social planning weights that would rationalize the status quo tax schedule as optimal i estimate the weights using the universe of us income tax returns from 2012 the results suggest that measuring economic efficiency requires weighting surplus accruing to the poor roughly 1 5 2 times more than surplus accruing to the rich this is because 1 of surplus to the poor can be turned into roughly 1 5 2 of surplus to the rich by reducing the progressivity of the tax schedule following kaldor and hicks original applications i compare income distributions over time in the us and across countries the results suggest us economic growth is 15 20 lower due to increased inequality than is suggested by changes in gdp because of its higher inequality the u s is unable to replicate the income distribution of countries like austria and the netherlands despite having higher national income per capita

optimal tax treatment of the family married couples abstract this paper examines the appropriate tax treatment of the family in a series of analytical models and numerical examples for a population of taxpaying couples which differ in earning capacity we drive the optimal tax rates for each potential earner these rates depend crucially upon own and cross labor supply elasticities and the joint distribution of wage rates our results suggest that the current system of income splitting in the united states under which husbands and wives face equal marginal tax rates is nonoptimal using results from recent econometric studies and allowing for a sensitivity analysis the optimal tax rates on secondary workers in the family are much lower than those on primary earners indeed our best estimate is that the secondary earner would face tax rates only one half as high as primary earners

household bargaining and the design of couples income taxation this paper studies the design of couples income taxation when consumption and labor supply decisions within the couple are made by maximizing a weighted sum of the spouses utilities bargaining weights are given but specific to each couple information structure and labor supply decisions follow the mirrleesian tradition however while the household s total consumption is publicly observable the consumption levels of the individual spouses are not observable with a utilitarian social welfare function we show that the expression for a spouses marginal income tax rate includes a pigouvian paternalistic and an incentive term the pigouvian term favors a marginal subsidy tax for the high weight low weight spouse whose labor supply otherwise tends to be too low high the sign and the magnitude of the incentive term depends on the weight structure across couples in some cases both terms have the same sign and imply a positive marginal tax for the low weight spouse who may be female and a negative one for the high weight spouse possibly the male this is at odds with the traditional boskin and sheshinski results our conclusions can easily be generalized to more egalitarian welfare functions finally we present numerical simulations based on a calibrated specification of our model the calculations confirm that the male spouse may well have the lower and possibly even negative marginal tax rate

bargaining and distribution in marriage the standard economic model of the family is a common preference model that assumes that a family maximizes a single utility function and implies that family behavior is independent of which individuals receive income or control resources in recent years this model has been challenged by game theoretic models of marriage that do not impose pooling and are therefore consistent with empirical evidence that income controlled by husbands and wives does have different effects on family behavior in this paper the authors review a number of simple bargaining models and relevant empirical evidence and discuss their implications for distribution within marriage

what has been learned about labor supply in the past twenty years the main advance in the study of labor supply in the past 20 years has come in recognizing and interpreting the variety of different labor supply functions that coexist in the empirical literature a crucial theoretical distinction with important empirical payoff is that between labor supply choices at the extensive margin i e labor force participation and employment choices and choices at the intensive margin i e choices about hours of work or weeks of work for workers another important distinction is the one between a descriptive labor supply function and a structural supply function that can be the basis for out of sample policy investigations concerning responses to tax and welfare programs and evaluations of welfare losses a full understanding of the participation hours dichotomy leads to an appreciation of the importance of the problem of selection bias what is the wage to impute to a nonworking person these distinctions are a legacy of the research conducted on labor supply over the past 20 years many important empirical questions have been addressed i how strong are the effects of taxes welfare and transfer programs on labor supply ii how important is intertemporal substitution can life cycle labor supply models explain business cycle labor supply behavior iii has the consensus view of the 1960 s of high labor supply elasticities for married women and low labor supply elasticities for married men held up all of the empirical evidence assembled on labor supply must be called into question in the light of important research on the basic quality of the data conducted by analysts at the university of michigan i discuss this evidence in a concluding section except for my discussion of measurement issues i focus only on the major discoveries about which a general consensus has emerged

temporary transfers in a simple dynamic general equilibrium model abstract the main result of this paper is to demonstrate that if future discounting is sufficiently weak a temporary transfer of commodities has almost no effects on current economies although it is well known in the macroeconomic literature this proposition has not been given any rigorous proof that takes the dynamic general equilibrium effect of a transfer into account this study builds a simple dynamic general equilibrium model with two goods and demonstrates that the proposition can be derived from the equilibrium conditions of perfect foresight equilibrium

do husbands and wives pool their resources evidence from the united kingdom child benefit common preference models of family behavior imply income pooling a restriction on family demand functions such that only the sum of husband s income and wife s income affects the allocation of goods and time testing the pooling hypothesis is difficult because most family income sources are not exogenous to the allocations being analyzed in this paper we present an alternative test based on a natural experiment a policy change in the united kingdom that transferred a substantial child allowance to wives in the late 1970s using family expenditure survey data we find strong evidence that a shift toward greater expenditures on women s clothing and children s clothing relative to men s clothing coincided with this income redistribution

on the taxation of trade within and between households abstract tax reform proposals affect individual welfares in ways which strongly depend on the nature of specialisation in household production and the pattern of trade within households variation in the degree of specialisation in domestic production across households strongly influences the impacts on individual tax burdens of a given tax reform the standard models of the economics literature cannot be used to analyse these issues because they ignore the two person nature of households and the existence of household production and trade this paper proposes a simple and tractable model to remedy this and uses it to analyse the impacts of the types of tax reform that have been the subject of recent policy debate

the effectiveness of consumption taxes and transfers as insurance against idiosyncratic risk we quantitatively evaluate the effectiveness of a consumption tax and transfer program as insurance against idiosyncratic earnings risk our framework is a heterogeneous agent incomplete market model with idiosyncratic wage risk and indivisible labor the model is calibrated to the u s economy we find a weak insurance effect of the transfer program extending the transfer system from the current scale raises consumption uncertainty which increases aggregate savings and reduces the interest rate furthermore consumption inequality shows a small decrease

optimal top marginal tax rates under income splitting for couples abstract this paper provides formulas for optimal top marginal tax rates when couples are taxed according to income splitting between spouses consumption is taxed and the skill distribution is unbounded optimal top marginal income tax rates are computed for germany using a dataset that includes the tax returns of all german top taxpayers we find that the optimal top marginal tax rate converges to about 2 3 and convergence obtains at income levels that are substantially higher than those currently subject to the actual top tax rate

tax reform and collective family decision making abstract traditional analysis of tax reform treats market behaviour as arising out of individual utility maximisation in this paper behaviour is modelled as the pareto efficient outcome of a family decision process conditions for the existence of a feasible pareto improving tax change are presented and contrasted with those that obtain in the individualistic case the consequences of treating households as a single individual are also discussed

competitive equilibria on turnpikes in a mckenzie economy i a neighborhood turnpike theorem in his seminal paper bewley 1982 integrates growth theory and competitive equilibrium theory considering a model with finitely many infinitely lived consumers who trade commodities in infinitely many competitive markets from the present through the future in such a model a competitive equilibrium path is an optimal growth path using this property he proves a turnpike theorem for competitive equilibrium paths in growth theory a social welfare function with respect to which optimal growth paths are considered has been assumed to be exogenously given bewley shows that in the competitive market system the market mechanism endogenously determines the social welfare function with respect to which an equilibrium path is regarded as an optimal path in bewley s model the future is discounted by a factor p in growth theory two types of turnpike theorems have been proved when the future is discounted the first type is called a neighborhood turnpike theorem it asserts that given c 0 there is 0 p 1 such that p p 1 implies that an optimal path at the discount factor p eventually stays within the s neighborhood of a stationary path this theorem does not require the social welfare function to be differentiable but only to be strictly concave and is proved by mckenzie 1979 the second type is called an asymptotic turnpike theorem it asserts that there is 0 p 1 such that p p 1 implies that an optimal path at the dicount factor p converges to a stationary path this theorem has been proved only under differentiability assumptions scheinkman 1976 bewley proves an asymptotic turnpike theorem making use of extensive differentiability assumptions the purpose of this paper is to synthesize these two importnat results of bewley and mckenzie namely we will prove a neighborhood turnpike theorem of mckenzie type in a model like that of bewley making no differentiability assumptions we will make a few generalizations of bewley s assumptions among them of importance are relaxing his differentiability assumptions weakening his interiority assumption and replacing his assumption of decreasing returns to

family specific investments and divorce with dynamically inconsistent households marital contracts and policy abstract this paper bridges two distinct areas of inquiry the economic theory of the family and behavioral research on time inconsistent preferences motivated by anecdotal and survey evidence suggesting that present bias plays a role in intra household decision making we propose a model in which hyperbolic discounting couples engage in home production activities thereby accumulating family specific capital over time at any given point in time the gains to continued marriage depend on the accumulated stock of this capital and a temporary random shock to match quality couples whose match quality deteriorates may choose to divorce and this is more likely to happen if past investments in family specific capital have been low we obtain three main sets of results first present biased preferences induce couples to underinvest in family specific capital and to overdivorce second sophisticated couples but not naive ones may choose to enter marriage on terms which make divorce more costly to obtain third the inefficiencies in the behavior of time inconsistent couples can be completely undone by means of earnings and divorce taxes that vary over the marital life cycle

welfare reform in european countries a microsimulation analysis this article compares the effects of increasing traditional welfare to introducing in work benefits in the 15 pre enlargement countries of the european union we use a labour supply model encompassing responses to taxes and transfers along both the intensive and extensive margins and the euromod microsimulation model to estimate current marginal and participation tax rates we quantify the equity efficiency trade off for a range of elasticity parameters in most countries because of large existing welfare programmes with high phase out rates increasing traditional welfare is undesirable unless the redistributive tastes of the government are extreme in contrast the in work benefit reform is desirable in a very wide set of cases

taxation and the household abstract previous analyses of demand systems and the welfare effects of taxing male and female labour supplies suppress the analysis of household resource allocation by assuming a household utility function to analyse the implications of assuming this is not the case we construct a simple but fairly general model of household resource allocation and use the properties of the equilibrium of this model to characterise the effects of tax policy on individual utilities as determined by the household resource allocation process

taxes and the labor market participation of married couples the earned income tax credit a distinguishing feature of recent changes to the us system of public assistance is its increasing focus on working families and reliance on the tax system to transfer dollars to needy families after a decade in near total obscurity the earned income tax credit eitc was expanded to become the largest cash transfer program for lower income families with children advocates of the eitc argue that unlike traditional welfare the credit helps promote both the values of family and work indeed empirical evidence consistent with economic theory suggests that the eitc promotes employment among eligible unmarried women with children to target benefits to lower income families however the eitc is based on family income leading to traditional welfare type disincentives for most eligible secondary earners in fact the eitc is likely to reduce overall family labor supply among married couples this paper examines the labor force participation response of married couples to eitc expansions between 1984 and 1996 the effect of the credit is estimated using both quasiexperimental and traditional reduced form labor supply models results from both models show the same qualitative conclusion that the eitc expansions reduced total family labor supply of married couples in all cases we find a decline in labor force participation by married women that more than offsets any rise in participation by their spouses while the labor force participation rate of married men increased by about 0 2 percentage points that of married women decreased by just over a full percentage point these aggregate effects mask substantial heterogeneity in the population women facing the strongest disincentives were more than 2 percentage points less likely to work after the expansions these findings imply that the eitc is effectively subsidizing married mothers to stay home and therefore have implications for the design of the program d 2003 elsevier b v all rights reserved

the optimal income taxation of couples this paper analyzes the general nonlinear optimal income tax for couples a multidimensional screening problem each couple consists of a primary earner who always participates in the labor market but makes an hours of work choice and a secondary earner who chooses whether or not to work if second earner participation is a signal of the couple being better worse off we prove that optimal tax schemes display a positive tax subsidy on secondary earnings and that the tax subsidy on secondary earnings decreases with primary earnings and converges to zero asymptotically we present calibrated microsimulations for the united kingdom showing that decreasing tax rates on secondary earnings is quantitatively significant and consistent with actual income tax and transfer programs

collective labor supply and welfare the paper develops a general collective model of household labor supply in which agents are characterized by their own possibly altruistic preferences and household decisions are only assumed to be pareto efficient an alternative interpretation is that there are two stages in the internal decision process agents first share nonlabor income according to some given sharing rule then each one optimally chooses his or her own labor supply and consumption this setting is shown to generate testable restrictions on labor supplies moreover the observation of labor supply behavior is sufficient for recovering individual preferences and the sharing rule up to a constant finally the traditional tools of welfare analysis can be adapted to the new setting

household labor supply and the gains from social insurance the marginal gains from social income insurance programs are captured by the gap in the marginal utility of consumption across states of nature to identify this gap in the context of the household this paper offers a new labor supply based approach that leverages household level economic interactions and optimality conditions we demonstrate that in frameworks of efficient household allocations spousal labor supply responses to shocks have direct implications for the gains from more generous government benefits to households we show that this holds for both intensive and extensive margin responses under fairly general conditions our analysis illustrates how labor market data can be used for assessing marginal welfare gains in a general class of social insurance schemes including the large and important programs of disability insurance and survivors benefits hence household labor supply behavior and responses to shocks which are widely studied in theoretical and empirical work hold valuable information for the optimal design of social insurance

optimal income transfer programs intensive versus extensive labor supply responses this paper analyzes optimal income transfers for low incomes labor supply responses are modeled along the intensive margin intensity of work on the job and along the extensive margin participation into the labor force when behavioral responses are concentrated along the intensive margin the optimal transfer program is a classical negative income tax program with a substantial guaranteed income support and a large phasing out tax rate however when behavioral responses are concentrated along the extensive margin the optimal transfer program is similar to the earned income tax credit with negative marginal tax rates at low income levels and a small guaranteed income carefully calibrated numerical simulations are provided

efficient intra household allocations a general characterization and empirical tests the neoclassical theory of demand applies to individuals yet in empirical work it is usually taken as valid for households with many members this paper explores what the theory of individuals implies for households that have more than one member we make minimal assumptions about how the individual members of the household resolve conflicts all we assume is that however decisions are made outcomes are efficient we refer to this as the collective setting we show that in the collective setting household demands must satisfy a symmetry and rank condition on the slutsky matrix we also present some further results on the effects on demands of variables that do not modify preferences but that do affect how decisions are made we apply our theory to a series of surveys of household expenditures from canada the tests of the usual symmetry conditions are rejected for two person households but not for one person households we also show that income pooling is rejected for two person households we then test for our collective setting conditions on the couples data none of the collective setting restrictions are rejected we conclude that the collective setting is a plausible and tractable next step to take in the analysis of household behavior

intra household resource allocation an inferential approach if household income is pooled and then allocated to maximize welfare then income under the control of mothers and fathers should have the same impact on demand with survey data on family health and nutrition in brazil the equality of parental income effects is rejected unearned income in the hands of a mother has a bigger effect on her family s health than income under the control of a father for child survival probabilities the effect is almost twenty times bigger the common preference or neoclassical model of the household is rejected if unearned income is measured with error and income is pooled then the ratio of maternal to paternal income effects should be the same equality of the ratios cannot be rejected there is also evidence for gender preference mothers prefer to devote resources to improving the nutritional status of their daughters fathers to sons

public provision of private goods government may provide a good that can if legally permitted be supplemented by private purchases policy is determined by majority rule under standard assumptions on preferences a majority voting equilibrium exists a regime of positive government provision with no restriction on private supplements is shown to be majority preferred to a regime of either only market provision or only government provision combined public and private expenditure on the good is higher under this dual provision regime than under either of the alternatives under some preference configurations the median income voter is pivotal under others a voter with income below the median is pivotal

stochastic turnpike property and stationary equilibrium abstract i study the stability properties of a stochastic equilibrium growth model with a finite number of infinitely lived consumers the exogenous stochastic environment is represented by a stationary stochastic process that influences preferences technology and primary resources consumers maximize the expected sum of discounted utilities production is intertemporal and primary resources are assumed to be necessary for the production of capital goods by adapting standard assumptions in general equilibrium theory and turnpike theory i show that if consumers have homogeneous discount factors close enough to one the allocation of an interior equilibrium converges to the allocation of a stationary equilibrium with transfer payments this result is used to prove the existence of a stationary equilibrium

optimal tax and transfer programs for couples with extensive labor supply responses this paper analyzes the optimal design of general nonlinear tax transfer schedules for couples under unitary and collective approaches to family decision making we consider a double extensive model of labor supply where each spouse makes a labor force participation choice for given hours of work we present simple and intuitive optimal tax rules that generalize existing findings on the optimal taxation of single person households with extensive responses saez 2002 to the case of two person households with double extensive responses without income effects on labor supply optimal tax rules as a function of sufficient statistics are the same under the unitary and collective approaches with income effects on labor supply optimal tax rules under the two approaches continue to depend on the same sufficient statistics but the collective model features an additional pigouvian term arising from a within family participation externality finally we present microsimulations of tax reform for 15 european countries suggesting that a reduction of tax rates on secondary earners relative to primary earners is associated with strong welfare gains in all countries

the trade off between equality and efficiency this paper uses a 1976 microdata base to estimate the marginal cost of reducing income inequality with a policy that has distributional effects similar to the present tax transfer system the analysis uses a simulation methodology in which only the labor supply effects are evaluated other behavioral effects are ignored the most striking finding is that marginal cost is quite high even for modest labor supply elasticities for example in the benchmark case with a weighted average economy wide uncompensated wage elasticity of 0 2 and compensated elasticity of 0 31 the disposable money income of upper income quintiles of households is depressed by 9 51 for each dollar increase in the disposable money income of lower income quintiles when income equivalent values that take account of the value of leisure are compared the marginal cost for this case is estimated to be 3 49