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Taxes and Marriage: A Two-Sided Search Analysis

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  • Hector Chade

    (Arizona State University, USA)

  • Gustavo Ventura

    (Pennsylvania State University, USA)

Abstract

This article analyzes the effects of differential tax treatment of married and single individuals in the United States on marriage formation and composition, divorce, and labor supply. We develop a marriage-market model with search frictions and heterogeneous agents that is sufficiently rich to capture key elements of the problem under consideration. We then calibrate the model and use it to evaluate the quantitative effects of several tax reforms aimed at making the tax law neutral with respect to marital status. We find that these reforms (i) systematically increase the labor supply of married females, with changes ranging from 0.3 to 10.1 percent; (ii) have substantial effects on the correlation of spouses' incomes, which changes from 0.2 to values between 0.185 and 0.334; (iii) can lead to either an increase or decrease in the fraction of people married, with changes that range from - 0:6 to 2.4 percent. Copyright Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association

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Bibliographic Info

Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 43 (2002)
Issue (Month): 3 (August)
Pages: 955-986

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Handle: RePEc:ier:iecrev:v:43:y:2002:i:3:p:955-986

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  1. Shimer, R. & Smith, L., 1997. "Assortative Matching and Search," Working papers 97-2a, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Jeremy Greenwood & Nezih Guner & John Knowles, 2002. "More on Marriage, Fertility and the Distribution of Income," RCER Working Papers 489, University of Rochester - Center for Economic Research (RCER).
  3. Maria Cancian & Deborah Reed, 1999. "The impact of wives’ earnings on income inequality: Issues and estimates," Demography, Springer, Springer, vol. 36(2), pages 173-184, May.
  4. Edward C. Prescott, 1986. "Theory ahead of business cycle measurement," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Fall, pages 9-22.
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  6. S. Rao Aiyagari & Jeremy Greenwood & Nezih Guner, 2000. "On the State of the Union," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 108(2), pages 213-244, April.
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  9. BLOCH, Francis & RYDER, Harl, 1994. "Two-Sided Search, Marriages and Matchmakers," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 1994028, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  10. Sjoquist, David L. & Walker, Mary Beth, 1995. "The Marriage Tax and the Rate and Timing of Marriage," National Tax Journal, National Tax Association, vol. 48(4), pages 547-58, December.
  11. Judd, Kenneth L., 1985. "The law of large numbers with a continuum of IID random variables," Journal of Economic Theory, Elsevier, vol. 35(1), pages 19-25, February.
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  13. Burdett, Ken & Coles, Melvyn G, 1997. "Marriage and Class," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(1), pages 141-68, February.
  14. Eric French, 2000. "The effects of health, wealth, and wages on labor supply and retirement behavior," Working Paper Series, Federal Reserve Bank of Chicago WP-00-2, Federal Reserve Bank of Chicago.
  15. Feldman, Mark & Gilles, Christian, 1985. "An expository note on individual risk without aggregate uncertainty," Journal of Economic Theory, Elsevier, vol. 35(1), pages 26-32, February.
  16. Alm, James & Whittington, Leslie A., 1997. "Income taxes and the timing of marital decisions," Journal of Public Economics, Elsevier, vol. 64(2), pages 219-240, May.
  17. Alm, James & Whittington, Leslie A., 1995. "Does the Income Tax Affect Marital Decisions?," National Tax Journal, National Tax Association, vol. 48(4), pages 565-72, December.
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  19. Becker, Gary S, 1973. "A Theory of Marriage: Part I," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 81(4), pages 813-46, July-Aug..
  20. Killingsworth, Mark R. & Heckman, James J., 1987. "Female labor supply: A survey," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 2, pages 103-204 Elsevier.
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Citations

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Cited by:
  1. Hans Fehr & Manuel Kallweit & Fabian Kindermann, 2013. "Reforming Family Taxation in Germany - Labor Supply vs. Insurance Effects," CESifo Working Paper Series 4386, CESifo Group Munich.
  2. Melvyn G. Coles & Marco Francesconi, 2013. "Equilibrium Search and the Impact of Equal Opportunities for Women," CESifo Working Paper Series 4556, CESifo Group Munich.
  3. Shannon Seitz, 2009. "Accounting for Racial Differences in Marriage and Employment," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 27(3), pages 385-437, 07.
  4. Guner, Nezih & Kaygusuz, Remzi & Ventura, Gustavo, 2013. "Childcare Subsidies and Household Labor Supply," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9775, C.E.P.R. Discussion Papers.
  5. Hans Fehr & Manuel Kallweit & Fabian Kindermann, 2013. "Families and social security," EcoMod2013 5280, EcoMod.
  6. Guner, Nezih & Kaygusuz, Remzi & Ventura, Gustavo, 2008. "Taxation, Aggregates and the Household," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6702, C.E.P.R. Discussion Papers.
  7. Hans Fehr & Manuel Kallweit & Fabian Kindermann, 2009. "Marital Risk, Family Insurance, and Public Policy," SOEPpapers on Multidisciplinary Panel Data Research 226, DIW Berlin, The German Socio-Economic Panel (SOEP).
  8. Pollak, Robert, 2007. "Family Bargaining and Taxes: A Prolegomenon to the Analysis of Joint Taxation," IZA Discussion Papers 3109, Institute for the Study of Labor (IZA).
  9. Coles, Melvyn & Francesconi, Marco, 2007. "On the Emergence of Toyboys: Equilibrium Matching with Ageing and Uncertain Careers," IZA Discussion Papers 2612, Institute for the Study of Labor (IZA).
  10. Andrés Erosa & Luisa Fuster & Diego Restuccia, 2002. "Fertility Decisions and Gender Differences in Labor Turnover, Employment, and Wages," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(4), pages 856-891, October.
  11. Elizabeth M. Caucutt & Nezih Guner & John Knowles, 2001. "The Timing of Births: A Marriage Market Analysis," Penn CARESS Working Papers, Penn Economics Department 49355d43c11f2314075e8b54e, Penn Economics Department.
  12. Marina Mendes, 2013. "Taxes, education,marriage and labor supply," Working Papers, Centro de Investigacion Economica, ITAM 1303, Centro de Investigacion Economica, ITAM.
  13. Knowles, John, 2007. "Why Are Married Men Working So Much? Home Production, Household Bargaining and Per-Capita Hours," IZA Discussion Papers 2909, Institute for the Study of Labor (IZA).

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