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Taxes and Female Labor Supply

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  • Remzi Kaygusuz

    (Sabanci University)

Abstract

The Economic Recovery Act of 1981 and the Tax Reform Act of 1986 changed the U.S. income tax structure in a dramatic fashion. In particular, these two reforms reduced the marginal tax rates for married households. In this paper I investigate what part of the rise in labor force participation of married women between 1980 to 1990 (a rise of 13 percentage points) can be accounted by the changes in taxes. I build an heterogeneous agent model populated by married households. Households differ by age and educational attainment levels of their members and decide whether the second earner, the wife, should participate in the labor market. I select parameter values so that the model economy is consistent with the 1980 U.S. economy in terms of income tax structure, wages (skill premium and gender gap), marital sorting (who is married with whom), and female labor force participation. Using counterfactual experiments I find that 20-24% of the rise in married female labor force participation is accounted for by the changes in the income tax structure. Changes in wages account for 62-64%, and changes in marital sorting account for 14-16% of the rise in the participation rate of married women. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2009.11.004
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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 13 (2010)
Issue (Month): 4 (October)
Pages: 725-741

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Handle: RePEc:red:issued:07-1

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Keywords: Female labor force participation; Two-person households; Taxes; Tax reforms;

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References

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  1. Jeremy Greenwood & Nezih Guner, 2004. "Marriage and Divorce since World War II: Analyzing the Role of Technological Progress on the Formation of Households," Economie d'Avant Garde Research Reports 8, Economie d'Avant Garde, revised Apr 2008.
  2. Jeremy Greenwood & Ananth Seshadri & Mehmet Yorukoglu, 2005. "Engines of Liberation," Review of Economic Studies, Oxford University Press, vol. 72(1), pages 109-133.
  3. Larry E. Jones & Rodolfo E. Manuelli & Ellen R. McGrattan, 2003. "Why are married women working so much?," Staff Report 317, Federal Reserve Bank of Minneapolis.
  4. Conny Olovsson, 2004. "Why do Europeans Work so Little?," 2004 Meeting Papers 760, Society for Economic Dynamics.
  5. repec:bla:restud:v:72:y:2005:i:1:p:109-133 is not listed on IDEAS
  6. Javier Diaz-Gimenez & Josep Pijoan-Mas, 2006. "Flat Tax Reforms in the U.S.: a Boon for the Income Poor," Computing in Economics and Finance 2006 400, Society for Computational Economics.
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Cited by:
  1. Remzi Kaygusuz, 2007. "Social Security and Two-Earner Households," 2007 Meeting Papers 677, Society for Economic Dynamics.
  2. Guner, Nezih & Kaygusuz, Remzi & Ventura, Gustavo, 2008. "Taxation, Aggregates and the Household," CEPR Discussion Papers 6702, C.E.P.R. Discussion Papers.
  3. Finn E. Kydland & Carlos E. J. M. Zarazaga, 2013. "Fiscal sentiment and the weak recovery from the Great Recession: a quantitative exploration," Working Papers 1301, Federal Reserve Bank of Dallas.

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