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This paper examines the appropriate tax treatment of the family in a series of analytical models and numerical examples. For a population of taxpaying couples which differ in earning capacity, we derive the optimal tax rates for each potential earner. These rates depend crucially upon own and cross labor supply elasticities and the joint distribution of wage rates. Our results suggest that the current system of income splitting in the United States, under which husbands and wives face equal marginal tax rates, is nonoptimal. Using results from recent econometric studies, and allowing for a sensitivity analysis, the optimal tax rates on secondary workers in the family are much lower than those on primary earners. Indeed, our best estimate is that the secondary earner would face tax rates only one-half as high as primary earners.
We, as a society, find ourselves confronted with a spectrum of potentially catastrophic and irreversible environmental problems, for which conventional approaches will not suffice in providing solutions. These problems are characterized, above all, by their unpredictability. This means that surprise is to be expected, and that sudden qualitative shifts in dynamics present serious problems for management. In general, it is difficult to detect strong signals of change early enough to motivate effective solutions, or even to develop scientific consensus on a time scale rapid enough to allow effective solution. Furthermore, such signals, even when detected, are likely to be displaced in space or sector from the source, so that the motivation for action is small. Conventional market mechanisms thus will be inadequate to address these challenges.
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