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Taxation and Labor Force Participation: The Case of Italy

  • Colonna, Fabrizio
  • Marcassa, Stefania

Italy has the lowest labor force participation of women among European countries. Moreover, the participation rate of married women is positively correlated to their husbands’ income. We show that a high tax schedule together with tax credits and transfers raise the burden of two-earner households, generating disincentives to work. We estimate a structural labor supply model for women, and use the estimated parameters to simulate the effects of alternative revenue-neutral tax systems. We find that joint taxation implies a drop in the participation rate. Conversely, working tax credit and gender-based taxation boost it, with the effects of the former concentrated on low educated women.

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Paper provided by CEPREMAP in its series CEPREMAP Working Papers (Docweb) with number 1203.

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Length: 47 pages
Date of creation: Jun 2012
Date of revision:
Handle: RePEc:cpm:docweb:1203
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