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

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

JEL codes

Replaces

Francesca Barigozzi, Helmuth Cremer, and Kerstin Roeder, “Until taxes do us part: tax penalties or bonuses and the marriage decision”, TSE Working Paper, n. 17-858, November 2017.

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.