DP13159 Income taxation of couples, spouses' labor supplies and the gender wage gap

Author(s): Helmuth Cremer, Kerstin Roeder
Publication Date: September 2018
Keyword(s): Couples' income taxation, gender wage gap, Household Labor Supply, optimal income taxation
JEL(s): D10, H21, H31, J16, J22
Programme Areas: Public Economics

We study the taxation of couples when female wages do not reflect their true productivity. We show that the expression for the marginal tax rates of the male spouses is the same as in a Mirrleesian world where wages reflect true productivities. Marginal taxes for the female spouses are reduced because of a Pigouvian correction. Consequently, the wage discrimination pleads for a lower marginal tax on the female spouse. Furthermore, the distortion of a couples' tradeoff between male and female labor supply is the same as in a Mirrleesian world without a gender wage gap. It only depends on true productivities and not on wages. In other words, the tax system completely neutralizes the extra distortion introduced by the wedge between the female spouse's wage and her true productivity.