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Spousal Tax Deduction, Social Security System and the Labor Supply of Japanese Married Women

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Abstract

Japanese spousal tax deduction and social security system cause a piecewise linear and discontinuous budget constraint for a married woman. Using a sample from the Japanese Panel Survey of Consumers, we estimate a labor supply model that simultaneously controls for wage endogeneity, sample selection into labor force as well as the possibly endogenous selection between different segments of the non-linear budget constraint. The effects of tax and social security system on the labor supply behavior of married women are more complex than the previous literature has pointed out. In particular, there are notable differences in the labor supply behavior of women who choose different segments of the budget constraint. The wage elasticity of women in the budget segment I (annual income less than the "1.03 million yen ceiling") is twice more negative (-1.28) than women in the budget segment III (annual income greater than the "1.41 million yen ceiling") (-0.60). The wage elasticity smaller than -1 for the budget segment I suggests that these women may be adjusting their hours of work so as to contain their income within the 1.03 million yen ceiling. Education has a positive effect on the hours of work for the budget segment III, but has no effect for the segment I. Unlike the budget segment III, the positive effect of education on wage is non-existent for the women in the budget segment I, indicating an under-utilization of the human capital of women who have chosen to be dependent on the husbands' income on the tax and social security purposes.

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File URL: http://www.iuj.ac.jp/workingpapers/index.cfm?File=EMS_2009_16.pdf
File Function: First version, 2009
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Bibliographic Info

Paper provided by Research Institute, International University of Japan in its series Working Papers with number EMS_2009_16.

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Length: 34 pages
Date of creation: Aug 2009
Date of revision:
Handle: RePEc:iuj:wpaper:ems_2009_16

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Keywords: Female labor supply; Spousal deduction; Social Security System; Non-linear budget constraint;

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  1. Kuroda, Sachiko & Yamamoto, Isamu, 2008. "Estimating Frisch labor supply elasticity in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 22(4), pages 566-585, December.
  2. Toshihiro Ihori & Ryuta Ray Kato & Masumi Kawade & Shun-ichiro Bessho, 2006. "Public Debt and Economic Growth in an Aging Japan," Working Papers EMS_2006_11, Research Institute, International University of Japan.
  3. Uwe E. Reinhardt, 2000. "Health Care for the Aging Baby Boom: Lessons from Abroad," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 71-83, Spring.
  4. Masaru Sasaki, 2002. "The Causal Effect of Family Structure on Labor Force Participation among Japanese Married Women," Journal of Human Resources, University of Wisconsin Press, vol. 37(2), pages 429-440.
  5. Benjamin M. Friedman & Mark Warshawsky, 1988. "Annuity Prices and Saving Behavior in the United States," NBER Chapters, in: Pensions in the U.S. Economy, pages 53-84 National Bureau of Economic Research, Inc.
  6. James H. Stock & Motohiro Yogo, 2002. "Testing for Weak Instruments in Linear IV Regression," NBER Technical Working Papers 0284, National Bureau of Economic Research, Inc.
  7. Ken Yamada, 2008. "Estimating labour supply and time allocation by married Japanese men and unmarried Japanese women," Applied Economics Letters, Taylor & Francis Journals, vol. 15(9), pages 659-666.
  8. M. Anne Hill, 1989. "Female Labor Supply in Japan: Implications of the Informal Sector for Labor Force Participation and Hours of Work," Journal of Human Resources, University of Wisconsin Press, vol. 24(1), pages 143-161.
  9. Benjamin M. Friedman & Mark Warshawsky, 1988. "Annuity Prices and Saving Behavior in the United States," NBER Working Papers 1683, National Bureau of Economic Research, Inc.
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