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The Impact of Post-Marital Maintenance on Dynamic Decisions and Welfare of Couples

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  • Hanno Foerster

    (Boston College)

Abstract

In many countries divorce law mandates post-marital maintenance payments (child support and alimony) to insure the lower earner in married couples against financial losses upon divorce. This paper studies how maintenance payments affect couples’ intertemporal decisions and welfare. I develop a dynamic model of family labor supply, housework, savings and divorce and estimate it using Danish register data. The model captures the policy trade off between providing insurance to the lower earner and enabling couples to specialize efficiently, on the one hand, and maintaining labor supply incentives for divorcees, on the other hand. I use the estimated model to analyze counterfactual policy scenarios in which child support and alimony payments are changed. The welfare maximizing maintenance policy is to triple child support payments and reduce alimony by 12.5% relative to the Danish status quo. Switching to the welfare maximizing policy makes men worse off, but comparisons to a first best scenario reveal that Pareto improvements are feasible, highlighting the limitations of maintenance policies.

Suggested Citation

  • Hanno Foerster, 2019. "The Impact of Post-Marital Maintenance on Dynamic Decisions and Welfare of Couples," Boston College Working Papers in Economics 982, Boston College Department of Economics.
  • Handle: RePEc:boc:bocoec:982
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    References listed on IDEAS

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    1. Joseph Mullins & Christopher Flinn & Meta Brown, 2015. "Family Law Effects on Divorce, Fertility and Child Investment," 2015 Meeting Papers 883, Society for Economic Dynamics.
    2. Sarolta Laczo & Arpad Abraham, 2015. "Household Behavior and Optimal Property Division upon Divorce," 2015 Meeting Papers 1041, Society for Economic Dynamics.
    3. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, December.
    4. Clark, Simon, 1999. "Law, Property, and Marital Dissolution," Economic Journal, Royal Economic Society, vol. 109(454), pages 41-54, March.
    5. McFadden, Daniel, 1989. "A Method of Simulated Moments for Estimation of Discrete Response Models without Numerical Integration," Econometrica, Econometric Society, vol. 57(5), pages 995-1026, September.
    6. Marion Gousse & Marion Leturq, 2018. "More or less unmarried. The impact of legal settings of cohabitation on labour market outcomes," Cahiers de recherche 1808, Centre de recherche sur les risques, les enjeux économiques, et les politiques publiques.
    7. Harry J. Holzer & Paul Offner & Elaine Sorensen, 2005. "Declining employment among young black less-educated men: The role of incarceration and child support," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 24(2), pages 329-350.
    8. Hayley Fisher & Hamish Low, 2015. "Financial implications of relationship breakdown: Does marriage matter?," Review of Economics of the Household, Springer, vol. 13(4), pages 735-769, December.
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    Cited by:

    1. Marion Goussé & Marion Leturcq, 2018. "More or less unmarried. The impact of legal settings of cohabitation on labor market outcomes," Working Papers 2018-08, French Institute for Demographic Studies.
    2. Fabio Blasutto, 2020. "Cohabitation vs Marriage: Mating Strategies by Education in the USA," LIDAM Discussion Papers IRES 2020023, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).

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    More about this item

    Keywords

    marriage and divorce; child support; alimony; household behavior; labor supply; limited commitment;
    All these keywords.

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy
    • J12 - Labor and Demographic Economics - - Demographic Economics - - - Marriage; Marital Dissolution; Family Structure
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • K36 - Law and Economics - - Other Substantive Areas of Law - - - Family and Personal Law

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