Article

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

Francesca Barigozzi, Helmuth Cremer, and Kerstin Roeder

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.

Keywords

Marriage penalty; Marriage bonus; Proposal game; Signaling;

JEL codes

  • H82: Governmental Property
  • J12: Marriage • Marital Dissolution • Family Structure • Domestic Abuse
  • H31: Household

Reference

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

Published in

European Economic Review, vol. 118, September 2019, pp. 37–50