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Marital Risk, Family Insurance, and Public Policy

  • Hans Fehr
  • Manuel Kallweit
  • Fabian Kindermann

The present paper aims to quantify the growth and welfare consequences of changing family structures in western societies. For this reason we develop a dynamic general equilibrium model with both genders which takes into account changes of the marital status as a stochastic process. Individuals respond to these shocks by adjusting savings and labor supply. Our quantitative results indicate that the declining number of marriages coupled with increasing divorce rates had a profound effect on macroeconomic variables and long-run welfare. We find a significant increase in aggregate capital accumulation and a rising labor market participation of women. In addition, our simulations indicate that the change in the marital structure had significant negative welfare consequences for women who lost between 0.4 and 2.2 percent of aggregate resources. The impact on men's welfare, however, could be positive or negative depending on the specific calibration.

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Paper provided by DIW Berlin, The German Socio-Economic Panel (SOEP) in its series SOEPpapers on Multidisciplinary Panel Data Research with number 226.

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Length: 24 p.
Date of creation: 2009
Date of revision:
Handle: RePEc:diw:diwsop:diw_sp226
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  1. Hector Chade & Gustavo Ventura, 2001. "Taxes and Marriage: A Two-Sided Search Analysis," Working Papers 36, Universidad de San Andres, Departamento de Economia, revised Aug 2001.
  2. Betsey Stevenson & Justin Wolfers, 2007. "Marriage and divorce: changes and their driving forces," Working Paper Series 2007-03, Federal Reserve Bank of San Francisco.
  3. Gert G. Wagner & Joachim R. Frick & Jürgen Schupp, 2007. "The German Socio-Economic Panel Study (SOEP) – Scope, Evolution and Enhancements," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 127(1), pages 139-169.
  4. Selahattin Imrohoroglu & Sagiri Kitao, 2009. "Labor Supply Elasticity and Social Security Reform," Working Papers, Center for Retirement Research at Boston College wp2009-5, Center for Retirement Research, revised Mar 2009.
  5. Elizabeth M. Caucutt & Nezih Guner & John Knowles, 2002. "Why Do Women Wait? Matching, Wage Inequality, and the Incentives for Fertility Delay," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(4), pages 815-855, October.
  6. Apps,Patricia & Rees,Ray, 2009. "Public Economics and the Household," Cambridge Books, Cambridge University Press, number 9780521716284, October.
  7. Johnson, William R & Skinner, Jonathan, 1986. "Labor Supply and Marital Separation," American Economic Review, American Economic Association, vol. 76(3), pages 455-69, June.
  8. Lundberg, Shelly & Pollak, Robert A, 1994. "Noncooperative Bargaining Models of Marriage," American Economic Review, American Economic Association, vol. 84(2), pages 132-37, May.
  9. Andrés Erosa & Luisa Fuster & Diego Restuccia, 2002. "Fertility Decisions and Gender Differences in Labor Turnover, Employment, and Wages," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(4), pages 856-891, October.
  10. Eva M. Sierminska & Joachim R. Frick & Markus M. Grabka, 2008. "Examining the Gender Wealth Gap in Germany," SOEPpapers on Multidisciplinary Panel Data Research 115, DIW Berlin, The German Socio-Economic Panel (SOEP).
  11. Konrad, Kai A & Lommerud, Kjell Erik, 1995. " Family Policy with Non-cooperative Families," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 581-601, December.
  12. Betsey Stevenson, 2008. "Divorce Law and Women's Labor Supply," NBER Working Papers 14346, National Bureau of Economic Research, Inc.
  13. Yongsung Chang & Sun-Bin Kim, 2003. "From Individual to Aggregate Labor Supply: A Quantitative Analysis Based on a Heterogeneous Agent Macroeconomy," Macroeconomics 0307003, EconWPA.
  14. Hans Fehr & Christian Habermann & Fabian Kindermann, 2008. "Social Security with Rational and Hyperbolic Consumers," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 884-903, October.
  15. Barham, Vicky & Devlin, Rose Anne & Yang, Jie, 2009. "A theory of rational marriage and divorce," European Economic Review, Elsevier, vol. 53(1), pages 93-106, January.
  16. Hong, Jay H. & Rios-Rull, Jose-Victor, 2007. "Social security, life insurance and annuities for families," Journal of Monetary Economics, Elsevier, vol. 54(1), pages 118-140, January.
  17. José María Da Rocha & Luisa Fuster, 2006. "Why Are Fertility Rates And Female Employment Ratios Positively Correlated Across O.E.C.D. Countries?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(4), pages 1187-1222, November.
  18. Libertad González Luna & Berkay Özcan, 2008. "The risk of divorce and household saving behavior," Economics Working Papers 1111, Department of Economics and Business, Universitat Pompeu Fabra.
  19. Donald Meyer & Jack Meyer, 2005. "Relative Risk Aversion: What Do We Know?," Journal of Risk and Uncertainty, Springer, vol. 31(3), pages 243-262, December.
  20. Laurence J. Kotlikoff & Avia Spivak, 1979. "The Family as an Incomplete Annuities Market," UCLA Economics Working Papers 151, UCLA Department of Economics.
  21. Matthias Wrede, 2003. "The Income Splitting Method: Is it Good for Both Marriage Partners?," German Economic Review, Verein für Socialpolitik, vol. 4(2), pages 203-216, 05.
  22. Papps, Kerry L., 2006. "The Effects of Divorce Risk on the Labour Supply of Married Couples," IZA Discussion Papers 2395, Institute for the Study of Labor (IZA).
  23. Love, David A., 2007. "What can the life-cycle model tell us about 401(k) contributions and participation?," Journal of Pension Economics and Finance, Cambridge University Press, vol. 6(02), pages 147-185, July.
  24. Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
  25. Epstein, Larry G & Zin, Stanley E, 1991. "Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: An Empirical Analysis," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 263-86, April.
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