Individual Versus Joint Taxation in Models With Household Production

Abstract

In a recent paper, Piggott and Whalley (1996) challenge the ‘‘conventional wisdom’’ that says that the individual rather than the household should be the unit of taxation and argue instead for joint taxation. Their point of departure is a point well taken. The literature on which this wisdom is based, in particular Boskin and Sheshinski (1983), ignores the existence of household production. The general argument is a nice one in the theory of the second-best. In the absence of taxation of market wage income, the marginal rates of technical substitution between primary and secondary labor in market and in household production would be equal to each other, and the marginal rate of substitution between the market and household good would be equal to the marginal rate of transformation between them, thus achieving Pareto efficiency. Introduction of income taxation leads to a distortion of the relation between the marginal rate of substitution and the marginal rate of transformation, which is the focus of concern in the literature,2 and, given the differing econo-