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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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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," NBER Working Papers 10772, National Bureau of Economic Research, Inc.
  2. Jeremy Greenwood & Ananth Seshadri & Mehmet Yorukoglu, 2003. "Engines of Liberation," RCER Working Papers, University of Rochester - Center for Economic Research (RCER) 503, University of Rochester - Center for Economic Research (RCER).
  3. 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, Society for Computational Economics 400, Society for Computational Economics.
  4. Olovsson, Conny, 2004. "Why do Europeans Work so Little?," Seminar Papers, Stockholm University, Institute for International Economic Studies 727, Stockholm University, Institute for International Economic Studies.
  5. Larry E. Jones & Rodolfo E. Manuelli & Ellen R. McGrattan, 2003. "Why are married women working so much?," Staff Report, Federal Reserve Bank of Minneapolis 317, Federal Reserve Bank of Minneapolis.
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Citations

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Cited by:
  1. Nezih Guner & Ezgi Kaya & Virginia Sánchez-Marcos, 2014. "Gender Gaps in Spain: Policies and Outcomes over the Last Three Decades," Working Papers 751, Barcelona Graduate School of Economics.
  2. Guner, Nezih & Kaygusuz, Remzi & Ventura, Gustavo, 2008. "Taxation, Aggregates and the Household," IZA Discussion Papers 3318, Institute for the Study of Labor (IZA).
  3. Guner, Nezih & Kaygusuz, Remzi & Ventura, Gustavo, 2014. "Childcare Subsidies and Household Labor Supply," IZA Discussion Papers 8303, Institute for the Study of Labor (IZA).
  4. Marina Mendes, 2013. "Taxes, education,marriage and labor supply," Working Papers, Centro de Investigacion Economica, ITAM 1303, Centro de Investigacion Economica, ITAM.
  5. Finn E. Kydland & Carlos E. J. M. Zarazaga, 2013. "Fiscal sentiment and the weak recovery from the Great Recession: a quantitative exploration," Working Papers, Federal Reserve Bank of Dallas 1301, Federal Reserve Bank of Dallas.
  6. Seonyoung Park, 2014. "Recent Stagnation of Married Women’s Labor Supply: A Life-Cycle Structural Model," Working Papers, University of Delaware, Department of Economics 14-10, University of Delaware, Department of Economics.
  7. Remzi Kaygusuz, 2007. "Social Security and Two-Earner Households," 2007 Meeting Papers, Society for Economic Dynamics 677, Society for Economic Dynamics.
  8. Gonzalo Castex, 2010. "Accounting for Changes in College Attendance Profile: a Quantitative Life-Cycle Analysis," Working Papers Central Bank of Chile, Central Bank of Chile 598, Central Bank of Chile.
  9. Guner, Nezih & Kaygusuz, Remzi & Ventura, Gustavo, 2012. "Income Taxation of U.S. Households: Facts and Parametric Estimates," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9078, C.E.P.R. Discussion Papers.
  10. Nicola Fuchs-Schündeln & Alexander Bick, 2014. "Taxation and Labor Supply of Married Women across Countries: A Macroeconomic Analysis," 2014 Meeting Papers, Society for Economic Dynamics 321, Society for Economic Dynamics.
  11. Nezih Guner & Remzi Kaygusuz & Gustavo Ventura, 2014. "Online appendix to "Income Taxation of U.S. Households: Facts and Parametric Estimates"," Technical Appendices, Review of Economic Dynamics 11-141, Review of Economic Dynamics.
  12. Braun, R. Anton & Kopecky, Karen A. & Koreshkova, Tatyana, 2013. "Old, sick, alone, and poor: a welfare analysis of old-age social insurance programs," Working Paper, Federal Reserve Bank of Atlanta 2013-02, Federal Reserve Bank of Atlanta.

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