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Shacking Up or Shelling Out: Income Taxes, Marriage, and Cohabitation

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  • James Alm

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  • Leslie Whittington

Abstract

Anecdotal evidence suggests that the income tax penalty associated with marriage contributes to the decision of a couple to live together as a married vs. a cohabiting couple. In this paper, we use household data from the Panel Study on Income Dynamics to estimate the impact of various factors, including the federal individual income tax, on a couple's decision to marry instead of cohabit. We find that the initial decision to form either a cohabiting or a married union is only marginally affected by the income tax consequences of one form of union vs. another, and other factors play a more important role. However, for those already living together as a cohabiting couple, the decision to make the transition from a cohabiting to a married couple is significantly affected by the tax consequences of such a move. Here, an increase in the income tax at legal marriage, or an increase in the marginal tax rate with marriage, has a statistically significant and negative impact on the probability of transition from cohabitation to legal marriage. However, the magnitude of the tax impact is generally small, and several other variables are more important determinants. Copyright Kluwer Academic Publishers 2003

Suggested Citation

  • James Alm & Leslie Whittington, 2003. "Shacking Up or Shelling Out: Income Taxes, Marriage, and Cohabitation," Review of Economics of the Household, Springer, vol. 1(3), pages 169-186, September.
  • Handle: RePEc:kap:reveho:v:1:y:2003:i:3:p:169-186
    DOI: 10.1023/A:1025093300161
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    References listed on IDEAS

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    1. Reagan Baughman & Stacy Dickert-Conlin & Scott Houser, 2002. "How well can we track cohabitation using the sipp? A consideration of direct and inferred measures," Demography, Springer;Population Association of America (PAA), vol. 39(3), pages 455-465, August.
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    Cited by:

    1. DAVID M. BLAU & WILBERT van der KLAAUW, 2013. "What Determines Family Structure?," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 579-604, January.
    2. Fisher, Hayley, 2012. "Just a piece of paper? The effect of marriage on health," Working Papers 2012-17, University of Sydney, School of Economics.
    3. repec:kap:reveho:v:16:y:2018:i:2:d:10.1007_s11150-016-9348-7 is not listed on IDEAS
    4. Stevenson, Adam, 2012. "The Labor Supply and Tax Revenue Consequences of Federal Same-Sex Marriage Legalization," National Tax Journal, National Tax Association;National Tax Journal, vol. 65(4), pages 783-806, December.
    5. Shelly Lundberg & Robert A. Pollak, 2013. "Cohabitation and the Uneven Retreat from Marriage in the U.S., 1950-2010," NBER Working Papers 19413, National Bureau of Economic Research, Inc.

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    Keywords

    marriage tax; marriage subsidy; hazard model;

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