 |
We assess the scope of taxation for implementing desirable allocations in
an economy in which married agents' decisions follow a bargaining procedure
satisfying Nash's (1950) axioms.
When one departs from a unitary view of household behavior tax schedules
must play a double role: i) to define households' objective
functions through their impact on threat points, and; ii) to
induce the desired allocations as optimal choices for households given
these objectives.
We find that the taxation principle, which asserts that there is no loss in relying on tax schedules, fails.
The set of allocations implemented by a tax schedule may be expanded by
auxiliary policy instruments which: i) align the households' and
planner's objectives, and; ii) manipulate taxable income
elasticities.
We provide conditions based on how large the transaction space is for an
allocation to be implemented by a tax system alone.
We also propose a test to identify (constrained) inefficient allocations
based on the planner's ability to manipulate elasticities.
