Taxation in matching markets

We analyze the effects of taxation in two-sided matching markets where agents have
heterogeneous preferences over potential partners. Our model provides a continuous
link between models of matching with and without transfers. Taxes generate inefficiency on the allocative margin, by changing who matches with whom. This allocative
inefficiency can be non-monotonic, but is weakly increasing in the tax rate under linear taxation if each worker has negative non-pecuniary utility of working. We adapt
existing econometric methods for markets without taxes to our setting, and estimate
preferences in the college-coach football market. We show through simulations that
standard methods inaccurately measure deadweight loss.