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The effects of separate taxation on labor participation of married couples. An empirical analysis using propensity score

Author

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  • Amadeo Fuenmayor

    () (University of Valencia)

  • Rafael Granell

    (University of Valencia)

  • Mauro Mediavilla

    (University of Valencia
    Barcelona Institute of Economics, C/ John M. Keynes, 1-11, 08034)

Abstract

Abstract Up to 1987 the Spanish Income Tax imposed compulsory joint filing for married couples. However, the 1988 reform allowed spouses to choose between joint and separate taxation, involving a reduction in tax rates for secondary earners. Our aim is to analyze this reform as a quasi-natural experiment, assessing the effects of tax changes on labor participation. To find out the causal effect we adopt the difference-in-differences technique. We use data from the ‘Spanish Income Tax Panel 1982–1998’. Our results show that, as a consequence of differential tax changes, married women in families more strongly affected by the fiscal reform increase their labor participation more than secondary earners from families less affected by the reform. The participation rate for secondary earners in the treatment group increases by 9.4 percentage points whereas the control group increases their participation rate by 7.8 percentage points. We define the treatment group as those secondary earners in relatively low-income families in year 1987 and the control group as those in middle-high income families, because the former experiences a stronger reduction in tax rates than the latter. As a result, we can attribute the 1.6-percentage-point-increase in participation rates to the 1988 income tax reform.

Suggested Citation

  • Amadeo Fuenmayor & Rafael Granell & Mauro Mediavilla, 2018. "The effects of separate taxation on labor participation of married couples. An empirical analysis using propensity score," Review of Economics of the Household, Springer, vol. 16(2), pages 541-561, June.
  • Handle: RePEc:kap:reveho:v:16:y:2018:i:2:d:10.1007_s11150-016-9345-x
    DOI: 10.1007/s11150-016-9345-x
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    References listed on IDEAS

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    More about this item

    Keywords

    Income tax; Treatment effects; Propensity score; Joint filing; Tax unit;

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General

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