Monday, Nov 3
Melvin Stephens, Estimating Program Benefits
Stephens, Jr., Melvin, and Jennifer Ward-Batts. 2004. "The impact of separate taxation on the intra-household allocation of assets: evidence from the UK." Journal of Public Economics, 88(9-10): 1989-2007.
The income tax system in the United Kingdom moved from joint to independent taxation of husbands' and wives' income in 1990. One interesting aspect of independent taxation is the ability for households to choose the division of household assets between the two spouses. This tax reform, therefore, creates an opportunity for households to engage in a form of tax avoidance by shifting their investment income to the spouse with the lower marginal tax rate. We use Family Expenditure Survey (FES) data to examine the impact of this tax reform on the magnitude of investment income shifting between spouses with different marginal tax rates. We find a sizeable shift in the share and incidence of asset income claimed by wives, who typically have lower marginal tax rates, as well as in the incidence of the wife claiming all the household asset income, indicating that households responded to this policy change by reallocating asset ownership.