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Taxation, aggregates and the household

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Author Info
Nezih Guner
Remzi Kaygusuz
Gustavo Ventura

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Abstract

We evaluate reforms to the U.S. tax system in a dynamic setup with heterogeneous married and single households, and with an operative extensive margin in labor supply. We restrict our model with observations on gender and skill premia, labor force participation of married females across skill groups, and the structure of marital sorting. We study four revenue-neutral tax reforms: a proportional consumption tax, a proportional income tax, a progressive consumption tax, and a reform in which married individuals file taxes separately. Our findings indicate that tax reforms are accompanied by large and differential effects on labor supply: while hours per-worker display small increases, total hours and female labor force participation increase substantially. Married females account for more than 50% of the changes in hours associated to reforms, and their importance increases sharply for values of the intertemporal labor supply elasticity on the low side of empirical estimates. Tax reforms in a standard version of the model result in output gains that are up to 15% lower than in our benchmark economy.

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Paper provided by Federal Reserve Bank of Minneapolis in its series Working Papers with number 660.

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Date of creation: 2008
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Handle: RePEc:fip:fedmwp:660

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Keywords: Taxation;

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  4. Richard Rogerson, 2006. "Understanding Differences in Hours Worked," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(3), pages 365-409, July. [Downloadable!] (restricted)
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  7. Erosa, Andres & Koreshkova, Tatyana, 2007. "Progressive taxation in a dynastic model of human capital," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 667-685, April. [Downloadable!] (restricted)
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  9. Fernández, Raquel & Guner, Nezih & Knowles, John, 2001. "Love and Money: A Theoretical and Empirical Analysis of Household Sorting and Inequality," CEPR Discussion Papers 3040, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  10. Shinichi Nishiyama & Kent Smetters, 2005. "Consumption Taxes and Economic Efficiency with Idiosyncratic Wage Shocks," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 1088-1115, October.
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  18. Steven J. Davis & Magnus Henrekson, 2004. "Tax Effects on Work Activity, Industry Mix and Shadow Economy Size: Evidence from Rich-Country Comparisons," NBER Working Papers 10509, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  19. Jay Hong & Jose-Victor Rios-Rull, 2006. "Social Security, Life Insurance and Annuities for Families," 2006 Meeting Papers 410, Society for Economic Dynamics. [Downloadable!]
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  20. John Knowles, 2006. "Why are Married Men Working So Much?," 2006 Meeting Papers 445, Society for Economic Dynamics. [Downloadable!]
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  21. Hector Chade & Gustavo Ventura, 2000. "Taxes and Marriage: A Two-Sided Search Analysis," UWO Department of Economics Working Papers 200015, University of Western Ontario, Department of Economics. [Downloadable!]
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  22. Jeremy Greenwood & Ananth Seshadri & Mehmet Yorukoglu, 2005. "Engines of Liberation," Review of Economic Studies, Blackwell Publishing, vol. 72(1), pages 109-133, 01. [Downloadable!] (restricted)
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  23. Conesa, Juan Carlos & Krueger, Dirk, 2006. "On the optimal progressivity of the income tax code," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1425-1450, October. [Downloadable!] (restricted)
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  24. Nezih Guner & Jeremy Greenwood, 2004. "Marriage and Divorce since World War II: Analyzing the Role of Technological Progress on the Formation of Households," 2004 Meeting Papers 65, Society for Economic Dynamics. [Downloadable!]
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  25. Gertler, Mark, 1999. "Government debt and social security in a life-cycle economy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 50(1), pages 61-110, June. [Downloadable!] (restricted)
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  26. Bosworth, Barry & Burtless, Gary, 1992. "Effects of Tax Reform on Labor Supply, Investment, and Saving," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 3-25, Winter. [Downloadable!] (restricted)
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  28. Cho, Jang-Ok & Rogerson, Richard, 1988. "Family labor supply and aggregate fluctuations," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 233-245. [Downloadable!] (restricted)
  29. 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. [Downloadable!]
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Axel Börsch-Supan & Alexander Ludwig, 2008. "Old Europe Ages: Reforms and Reform Backlashes," NBER Chapters, in: Demography and the Economy National Bureau of Economic Research, Inc. [Downloadable!]
  2. Bulent Guler & Fatih Guvenen & Giovanni L. Violante, 2009. "Joint-Search Theory: New Opportunities and New Frictions," NBER Working Papers 15011, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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