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Taxation and Labor Force Participation: The Case of Italy

  • Stefania Marcassa

    ()

    (Université de Cergy-Pontoise, THEMA)

  • Fabrizio Colonna

    ()

    (Banca d’Italia, Economic Structure and Labor Market Division.)

Registered author(s):

    Italy has the lowest labor force participation of women among OECD 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 house- holds, 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 THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise in its series THEMA Working Papers with number 2011-22.

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    Date of creation: 2011
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    Handle: RePEc:ema:worpap:2011-22
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