AN EVALUATION OF INCOME SPLITTING WITH VARIABLE FEMALE LABOR SUPPLY

Debate on the tax unit in Australia often involves claims that a syste m with allows spouses to split their incomes for the purposes of taxat ion is superior to an individual based system. In this paper we estima te a female labour supply model on data for married couples and use it to stimulate the effects of a switch from the 1985/86 progressive ind ividual personal income tax system to one allowing full income splitti ng. We analyze distributional outcomes and, at least as far as female labour supply is concerned, change in the excess burden of the tax sys tem. The impacts depend upon the way in which the policy is made reven ue neutral. We consider two tax replacement scenarios. We quantify the impact on female hours of work and investigate how welfare impacts va ry by household characteristics.