Discussion paper / School of Business & Economics ; 2011/16 : Economics
progressive income tax; tax unit; insurance
336 Public finance
An unduly neglected implication of the choice of the tax unit is its impact on the
consumption risk carried by taxpayers. As compared to individual taxation, joint taxation
with income splitting provides couples with more insurance against the risk of earning
inability for one of the spouses. If that risk is not insurable in markets, replacing individual taxation with joint taxation with income splitting can generate a Pareto-improvement.
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