Marriage, Fertility, and Female Labor Force Participation in an Aging Economy

Japan faces a dual demographic challenge: persistently low fertility and underutilization of female labor. This paper develops a quantitative life-cycle model with heterogeneous agents to study how the spousal tax system and the social norm of unequal gender division of childcare jointly shape marriage, fertility, and women’s labor supply decisions. The model incorporates endogenous marriage, fertility, and female labor participation choices, calibrated to Japanese data, and evaluates a series of counterfactual policy experiments. We find that the spousal tax treatment is a key disincentive to women’s labor market participation. Eliminating tax benefits and deductions increases female labor supply but reduces marriage and fertility. Childcare subsidies partly offset these effects by raising household resources and encouraging women’s market participation, though their effectiveness is limited in the presence of restrictive social norms. Once the childcare norm is relaxed, however, subsidies become more effective: they simultaneously raise fertility, stabilize marriage, and boost women’s labor supply across all life stages. These findings suggest that achieving both higher fertility and higher female labor force participation in Japan requires a dual strategy: financial support for childrearing and broader institutional and cultural reforms.