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To Work or Not to Work: Did Tax Reforms Affect Labor Force Participation of Married Couples?

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Author Info

  • Bar Michael

    ()
    (San Francisco State University)

  • Leukhina Oksana

    ()
    (University of North Carolina at Chapel Hill)

Abstract

During the period 1960-2000, the proportion of two-earner couples among married couples in the U.S. more than doubled, while tax laws underwent numerous changes, with major reforms taking place in the 1980's (flattening of the federal income tax schedule) and in the 1990's (major expansion of the Earned Income Tax Credit (EITC)). We investigate the impact of the actual tax reforms on married couples' participation through a model of heterogeneous households. Theoretically, we elucidate what aspects of the tax reforms are important for a family time allocation choice when the work choice is discrete. Quantitatively, we show that even in the 1980's, changes in tax laws account for only 8% of the increase in the proportion of two-earner couples, although this small average impact masks a much larger impact experienced by women with high earning husbands. Another important finding is that the Earned Income Tax Credit substantially discourages work participation among married couples with low-earning husbands. A notable contribution of this work is the accurate incorporation of the complex U.S. tax code into a model of heterogeneous households, which is done using TAXSIM, a tax calculator software.

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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

Volume (Year): 9 (2009)
Issue (Month): 1 (July)
Pages: 1-30

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Handle: RePEc:bpj:bejmac:v:9:y:2009:i:1:n:28

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Cited by:
  1. Seonglim Lee & Jinkook Lee & Yunhee Chang, 2014. "Is Dual Income Costly for Married Couples? An Analysis of Household Expenditures," Journal of Family and Economic Issues, Springer, vol. 35(2), pages 161-177, June.
  2. Colonna, Fabrizio & Marcassa, Stefania, 2012. "Taxation and Labor Force Participation: The Case of Italy," CEPREMAP Working Papers (Docweb) 1203, CEPREMAP.
  3. Bar, Michael & Leukhina, Oksana, 2011. "On the time allocation of married couples since 1960," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 491-510.
  4. Bar, Michael & Leukhina, Oksana, 2005. "Accounting for Changes in Labor Force Participation of Married Women: The Case of the U.S. since 1959," MPRA Paper 17264, University Library of Munich, Germany, revised Jun 2009.
  5. Simona Cociuba & Alexander Ueberfeldt, 2012. "Heterogeneity and Long-Run Changes in U.S. Hours and the Labor Wedge," University of Western Ontario, CIBC Centre for Human Capital and Productivity Working Papers 20124, University of Western Ontario, CIBC Centre for Human Capital and Productivity.
  6. Stefania Marcassa & Fabrizio Colonna, 2011. "Taxation and Labor Force Participation: The Case of Italy," THEMA Working Papers 2011-22, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.

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