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Taxation and Labor Force Participation: The Case of Italy

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  • Fabrizio Colonna

    (Banca d'Italia - Banca d'Italia)

  • Stefania Marcassa

    ()
    (THEMA - Théorie économique, modélisation et applications - CNRS : UMR8184 - Université de Cergy Pontoise)

Abstract

Italy has the lowest labor force participation of women among European countries. Moreover, the participation rate of married women is positively correlated to their husbands' income. We show that a high tax schedule together with tax credits and transfers raise the burden of two-earner households, generating disincentives to work. We estimate a structural labor supply model for women, and use the estimated parameters to simulate the effects of alternative revenue-neutral tax systems. We find that joint taxation implies a drop in the participation rate. Conversely, working tax credit and gender-based taxation boost it, with the effects of the former concentrated on low educated women.

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Paper provided by HAL in its series Working Papers with number hal-00869315.

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Date of creation: 02 Oct 2013
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Handle: RePEc:hal:wpaper:hal-00869315

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Keywords: female labor force participation; Italian tax system; second earner tax rate; joint taxation; gender-based taxation; working tax credit;

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