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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.)

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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