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The Effects of Joint Taxation of Married Couples on Labor Supply and Non-wage Income

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  • Sara LaLumia

    ()
    (Department of Economics, College of William and Mary)

Abstract

The United States changed its tax treatment of married couples in 1948, from a system in which each spouse paid taxes on his or her own income to a system in which a married couple is taxed as a unit. The switch from separate to joint taxation changed incentives for labor supply and asset ownership. This paper investigates the effects of the conversion to joint taxation, taking advantage of a natural experiment created by cross-state variation in property laws. Married individuals in states with community property laws had always been taxed as if each spouse had earned half of the couple's income, and thus were unaffected by the 1948 legal change. Comparing the behavior of taxpayers in affected and unaffected states indicates that the tax change is associated with a decline of 0.9-1.6 percentage points in the labor force participation rate of married women, consistent with the higher first-dollar tax rates they faced after 1948. Married women were also 0.6-1.9 percentage points less likely to have non-wage income after 1948, reflecting pre-1948 allocation of family assets to wives for tax purposes. The effects of joint taxation on married men's labor force participation and non-wage income holding are generally not statistically significant.

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Bibliographic Info

Paper provided by Department of Economics, College of William and Mary in its series Working Papers with number 28.

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Length: 45 pages
Date of creation: 23 Mar 2006
Date of revision:
Handle: RePEc:cwm:wpaper:28

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Keywords: joint taxation; labor supply; income shifting;

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Est-il fiscalement avantageux de se marier ?
    by Kanelbullix in Ecopublix on 2007-11-13 11:45:00
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Cited by:
  1. André Decoster & Peter Haan, 2011. "A Switch from Joint to Individual Taxation Is Welfare Improving," Discussion Papers of DIW Berlin 1175, DIW Berlin, German Institute for Economic Research.
  2. Raaum, Oddbjørn & Bratsberg, Bernt & Røed, Knut & Österbacka , Eva & Eriksson, Tor & Jäntti, Markus & Naylor, Robin, 2007. "Marital Sorting, Household Labor Supply, and Intergenerational Earnings Mobility across Countries," Memorandum 17/2007, Oslo University, Department of Economics.
  3. Thomas F. Crossley & Sung-Hee Jeon, 2007. "Joint Taxation and the Labour Supply of Married Women: Evidence from the Canadian Tax Reform of 1988," Fiscal Studies, Institute for Fiscal Studies, vol. 28(3), pages 343-365, 09.
  4. Stevenson, Adam, 2012. "The Labor Supply and Tax Revenue Consequences of Federal Same-Sex Marriage Legalization," MPRA Paper 36532, University Library of Munich, Germany.
  5. Håkan Selin, 2009. "The Rise in Female Employment and the Role of Tax Incentives - An Empirical Analysis of the Swedish Individual Tax Reform of 1971," CESifo Working Paper Series 2629, CESifo Group Munich.
  6. Fisher, Hayley, 2011. "Marriage penalties, marriage, and cohabitation," Working Papers 2011-12, University of Sydney, School of Economics.
  7. Klara Kaliskova, 2013. "Family Taxation and the Female Labor Supply: Evidence from the Czech Republic," CERGE-EI Working Papers wp496, The Center for Economic Research and Graduate Education - Economic Institute, Prague.

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