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

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...

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Bibliographic Details
Published inEuropean economic review Vol. 118; pp. 37 - 50
Main Authors Barigozzi, Francesca, Cremer, Helmuth, Roeder, Kerstin
Format Journal Article
LanguageEnglish
Published Elsevier B.V 01.09.2019
Subjects
Marriage bonus
Marriage penalty
Proposal game
Signaling
Signaling
Marriage penalty
Marriage bonus
Proposal game
H31
J12
D82
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Summary: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.
ISSN:0014-2921
1873-572X
DOI:10.1016/j.euroecorev.2019.05.001