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Taxes and Marriage: A Two-Sided Search Analysis

  • Hector Chade

    (Arizona State University, USA)

  • Gustavo Ventura

    (Pennsylvania State University, USA)

This article analyzes the effects of differential tax treatment of married and single individuals in the United States on marriage formation and composition, divorce, and labor supply. We develop a marriage-market model with search frictions and heterogeneous agents that is sufficiently rich to capture key elements of the problem under consideration. We then calibrate the model and use it to evaluate the quantitative effects of several tax reforms aimed at making the tax law neutral with respect to marital status. We find that these reforms (i) systematically increase the labor supply of married females, with changes ranging from 0.3 to 10.1 percent; (ii) have substantial effects on the correlation of spouses' incomes, which changes from 0.2 to values between 0.185 and 0.334; (iii) can lead to either an increase or decrease in the fraction of people married, with changes that range from - 0:6 to 2.4 percent. Copyright Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association

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Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 43 (2002)
Issue (Month): 3 (August)
Pages: 955-986

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Handle: RePEc:ier:iecrev:v:43:y:2002:i:3:p:955-986
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  1. Shimer, R. & Smith, L., 1998. "Assortive Matching and Search," Papers 98-09, Michigan - Center for Research on Economic & Social Theory.
  2. Jeremy Greenwood & Nezih Guner & John Knowles, . "More on Marriage, Fertility, and the Distribution of Inocome," CARESS Working Papres 99-05, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
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  16. Killingsworth, Mark R. & Heckman, James J., 1987. "Female labor supply: A survey," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 2, pages 103-204 Elsevier.
  17. Alm, James & Whittington, Leslie A., 1997. "Income taxes and the timing of marital decisions," Journal of Public Economics, Elsevier, vol. 64(2), pages 219-240, May.
  18. Eric French, 2004. "The Effects of Health, Wealth and Wages on Labor Supply and Retirement Behavior," 2004 Meeting Papers 96, Society for Economic Dynamics.
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