Intrahousehold inequality and the joint taxation of household earnings (with Carlos da Costa, Felipe Lobel, and Humberto Moreira), Journal of Public Economics, Volume 239, 2024
Abstract: We derive the optimal joint-income tax schedule for couples, focusing on the distinction between interpersonal and inter-household inequality. Households are composed of two spouses with possibly unequal access to the family’s economic resources. Individual-oriented utilitarianism typically leads to a misalignment between the households’ and the government’s objectives, a phenomenon termed dissonance by Apps and Rees (1988). The traditional ABC formula must be amended by including a Pigouvian term to correct for dissonance. Under general conditions, the effect of dissonance on marginal taxes is ambiguous; its sign depends on whether the less powerful spouse’s marginal contribution to household earnings is less than, or greater than, her marginal entitlement to household consumption. Assuming identical iso-elastic preferences, the multidimensional heterogeneity collapses into a single-dimensional index, preserving the single-crossing property. This simplification enables us to solve (Mirrlees, 1971)’s multidimensional program and quantitatively assess the size and sign of the Pigouvian term, which is positive across all income levels, leading to higher marginal tax rates.
“Empowering Women through Economic Policy: A Tale in Three Acts - Incidence, Behavioral Responses, and Optimal Tax Design” (with Carlos da Costa, and Katia Nishiyama) - Draft coming out soon
Abstract: We examine the economic implications of redistributive policies that empower women within a Mirrleesian framework, placing intrahousehold decision dynamics at the forefront. Unveiling the family black box through a collective model of household decision-making -- as introduced by Chiappori (1998) -- fundamentally reshapes the evaluation of empowerment policies, such as gender-specific subsidies designed to enhance women's welfare by increasing the market returns to female labor supply. Building on Alves et al. (2024), we explore how a gender subsidy interacts with intrahousehold dynamics in an optimal joint tax design scenario. We demonstrate that neglecting the power dynamics within the household can yield counterintuitive outcomes—potentially harming the very gender these policies aim to support. Virtually all women benefit from the subsidy, with approximately seventy percent experiencing a welfare gain exceeding an equivalent to a five percent increase in their consumption. The central insight is that the effectiveness of overall empowerment policies hinges critically on their ability to foster empowerment within the household.
Tax Perturbation without the Spence-Mirrlees’ Condition: The Role of Income Segregation (with Carlos da Costa and Humberto Moreira) ;
Abstract: Tax perturbation methods rely on the sufficiency of local conditions to describe agents' behavior in a taxation context. For this to be the case, agents’ choices must be ‘well-behaved’. We show that this requirement may be too restrictive when the Spence-Mirrlees’ condition (SMC) does not hold, once budget sets are endogenous in an optimal tax problem. In a quasi-linear version of Mirrlees’ (1971) model without the SMC, we show that the optimal tax system promotes income segregation when agents are allowed to be indifferent between two different bundles. This type of indifference is generically ruled out under the tax perturbation method because of the sufficiency of local incentive constraints. Moreover, when this condition is not imposed, aggregate choices are still required to be well-behaved, which we show that may not be the case at the optimum when global constraints are explicitly taken into account.
The Optimal Parametric Taxation of Couples (with Carlos da Costa and Artur Rodrigues)
Abstract: We revisit classic optimal tax theory with the recognition that most people live in multi-person households. Using the collective model of household behavior, we show how optimal tax formulae must be adjusted and highlight the usefulness of non-rate policies along the lines of Moore and Slemrod (2021). We show that the presence of household ’internalities’ makes lump-sum taxes seldom optimal and the separability of preferences no longer suffices for Atkinson and Atkinson and Stiglitz’s uniform tax result. We also derive household-level adaptations of foundational taxation principles, such as the Inverse Elasticity Rule and the Corlett-Hague result. Furthermore, we explore the ‘behavioral’ nature of collective households comprised of fully rational agents to draw a parallel to Farhi and Gabaix’s seminal work.
Bargaining over Taxes: Origins of the American Revolutionary War (with Yunus Topbas) - Draft available upon request
Abstract: Using a multi-stage bargain model, we show how the disagreement about taxes between the British Empire and the American Colony can be seen as the roots of the conflicts that led to the American Revolutionary War. The proposed model interprets major historical events as stages of the bargaining process.
Intergenerational Mobility, Wealth Taxes, and Human Capital Investments
A bridge between commitment and non-commitment: Stochastic types in Laffont and Tirole's dynamic regulation model.
Unawareness and the value of information (with Matteo Camboni)