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Taxation and Labor Force Participation: The Case of Italy

Author

Listed:
  • Stefania Marcassa

    () (Université de Cergy-Pontoise, THEMA)

  • Fabrizio Colonna

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

Abstract

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.

Suggested Citation

  • Stefania Marcassa & Fabrizio Colonna, 2011. "Taxation and Labor Force Participation: The Case of Italy," THEMA Working Papers 2011-22, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  • Handle: RePEc:ema:worpap:2011-22
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    File URL: http://thema.u-cergy.fr/IMG/documents/2011-22.pdf
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    References listed on IDEAS

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    Cited by:

    1. De Luca, Giuseppe & Rossetti, Claudio & Vuri, Daniela, 2012. "In-Work Benefits for Married Couples: An Ex-Ante Evaluation of EITC and WTC Policies in Italy," IZA Discussion Papers 6739, Institute for the Study of Labor (IZA).

    More about this item

    Keywords

    female labor force participation; Italian tax system; second earner tax rate; joint taxation; gender-based taxation; working tax credit JEL Classification: J21; J22; H31;

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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