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Taxation and Family Labor Supply

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  • Alexander Gelber

    (Harvard University)

Abstract

I examine the impact of taxation on family labor supply and test economic models of the family by analyzing responses to the Tax Reform of 1991 in Sweden, known as the "tax reform of the century" because of its large magnitude. Using detailed administrative panel data on approximately 11% of the married Swedish population, I ...nd that husbands and wives react substantially to their own marginal tax rates and to their spouses’rates. The estimates imply that husbands’leisure and wives’leisure are complements in the full sample. I test and reject a set of models in which the family maximizes a single utility function. The standard econometric labor supply specification, in which one spouse reacts to the other spouse’ income as if it were s unearned income, yields biased coe¢ cient estimates. Uncompensated labor supply elasticities are over-estimated by a factor of more than three, and income e¤ects are of the wrong sign. Overall, the results suggest that there is interplay between spouses’ labor supply decisions, and that taking account of this joint aspect of their decision- making leads to new conclusions about labor supply responses to taxation.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 249.

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Date of creation: 2008
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Handle: RePEc:red:sed008:249

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  1. Henrik Jacobsen Kleven & Claus Thustrup Kreiner & Emmanuel Saez, 2009. "The Optimal Income Taxation of Couples," Econometrica, Econometric Society, vol. 77(2), pages 537-560, 03.
  2. Åsa Hansson, 2007. "Taxpayers' responsiveness to tax rate changes and implications for the cost of taxation in Sweden," International Tax and Public Finance, Springer, vol. 14(5), pages 563-582, October.
  3. Blau, Francine D. & Kahn, Lawrence M., 2006. "Changes in the Labor Supply Behavior of Married Women: 1980-2000," IZA Discussion Papers 2180, Institute for the Study of Labor (IZA).
  4. Loukas Karabarbounis & Andrea Ichino & Alberto Alesina, 2008. "Gender based Taxation," 2008 Meeting Papers 500, Society for Economic Dynamics.
  5. Esther Duflo, 2000. "Grandmothers and Granddaughters: Old Age Pension and Intra-household Allocation in South Africa," NBER Working Papers 8061, National Bureau of Economic Research, Inc.
  6. Gustman, Alan L & Steinmeier, Thomas L, 2000. "Retirement in Dual-Career Families: A Structural Model," Journal of Labor Economics, University of Chicago Press, vol. 18(3), pages 503-45, July.
  7. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
  8. Nada Eissa, 1995. "Taxation and Labor Supply of Married Women: The Tax Reform Act of 1986 as a Natural Experiment," NBER Working Papers 5023, National Bureau of Economic Research, Inc.
  9. Aronsson, Thomas & Wikstrom, Magnus, 1994. "Nonlinear Taxes in a Life-Cycle Consistent Model of Family Labour Supply," Empirical Economics, Springer, vol. 19(1), pages 1-17.
  10. Richard Blundell & Alan Duncan & Costas Meghir, 1998. "Estimating Labor Supply Responses Using Tax Reforms," Econometrica, Econometric Society, vol. 66(4), pages 827-862, July.
  11. Lindsey, Lawrence B., 1987. "Individual taxpayer response to tax cuts: 1982-1984 : With implications for the revenue maximizing tax rate," Journal of Public Economics, Elsevier, vol. 33(2), pages 173-206, July.
  12. Wojciech Kopczuk & Emmanuel Saez & Jae Song, 2007. "Uncovering the American Dream: Inequality and Mobility in Social Security Earnings Data since 1937," NBER Working Papers 13345, National Bureau of Economic Research, Inc.
  13. Aronsson, Thomas & Wikstrom, Magnus, 1994. "Nonlinear Taxes in a Life-Cycle Consistent Model of Family Labour Supply: Erratum," Empirical Economics, Springer, vol. 19(4), pages 717-18.
  14. Udry, Christopher, 1996. "Gender, Agricultural Production, and the Theory of the Household," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 1010-46, October.
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Cited by:
  1. Alexander M. Gelber, 2010. "Taxes and Time Allocation: Evidence from Single Women," 2010 Meeting Papers 1031, Society for Economic Dynamics.
  2. Ericson, Peter & Flood, Lennart, 2011. "Taxes, Wages and Working Hours," Working Papers in Economics 514, University of Gothenburg, Department of Economics.
  3. Sören Blomquist & Håkan Selin, 2009. "Hourly Wage Rate and Taxable Labor Income Responsiveness to Changes in Marginal Tax Rates," CESifo Working Paper Series 2644, CESifo Group Munich.
  4. Loukas Karabarbounis & Andrea Ichino & Alberto Alesina, 2008. "Gender based Taxation," 2008 Meeting Papers 500, Society for Economic Dynamics.
  5. Alberto Alesina & Andrea Ichino & Loukas Karabarbounis, 2011. "Gender-Based Taxation and the Division of Family Chores," American Economic Journal: Economic Policy, American Economic Association, vol. 3(2), pages 1-40, May.
  6. Liang, Che-Yuan, 2009. "Nonparametric Structural Estimation of Labor Supply in the Presence of Censoring," Working Paper Series, Center for Fiscal Studies 2009:6, Uppsala University, Department of Economics.
  7. Raj Chetty & John N. Friedman & Tore Olsen & Luigi Pistaferri, 2011. "Adjustment Costs, Firm Responses, and Micro vs. Macro Labor Supply Elasticities: Evidence from Danish Tax Records," The Quarterly Journal of Economics, Oxford University Press, vol. 126(2), pages 749-804.
  8. Martin S. Feldstein, 2008. "Effects of Taxes on Economic Behavior," NBER Working Papers 13745, National Bureau of Economic Research, Inc.
  9. Nava Ashraf, 2009. "Spousal Control and Intra-household Decision Making: An Experimental Study in the Philippines," American Economic Review, American Economic Association, vol. 99(4), pages 1245-77, September.
  10. Feldstein, Martin, 2008. "Effects of Taxes on Economic Behavior," Scholarly Articles 2943922, Harvard University Department of Economics.

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