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Assessing the welfare impact of the 2001 tax reform on dual-earner families

  • Julie L. Hotchkiss
  • Robert E. Moore

We assess the 2001 income tax reform to determine its welfare impact across families with different characteristics. A household labor supply model is estimated to account for variable behavioral responses by family type. We find that while higher-education families received a larger share of the welfare gain generated from lower marginal tax rates, it was the lower-education families that provided the bulk of the additional labor supply motivated by the tax reform. We also find differing welfare gains across families with different numbers of children, highlighting the importance of allowing responses to vary across family characteristics when assessing the welfare impact of a policy change.

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Paper provided by Federal Reserve Bank of Atlanta in its series Working Paper with number 2007-27.

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Date of creation: 2007
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Handle: RePEc:fip:fedawp:2007-27
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  1. Leora Friedberg & Anthony Webb, 2006. "Determinants and Consequences of Bargaining Power in Households," Working Papers, Center for Retirement Research at Boston College wp2006-13, Center for Retirement Research, revised Jun 2006.
  2. Noonan, Mary C. & Smith, Sandra S. & Corcoran, Mary E., 2005. "Examining the Impact of Welfare Reform, Labor Market Conditions, and the Earned Income Tax Credit on the Employment of Black and White Single Mothers," Institute for Research on Labor and Employment, Working Paper Series qt7x25h6h3, Institute of Industrial Relations, UC Berkeley.
  3. Moore, Robert E., 1996. "Ranking income distributions using the Geometric Mean and a related general measure," MPRA Paper 10171, University Library of Munich, Germany.
  4. Olivier Bargain & Nicolas Moreau, 2003. "Is the Collective Model of Labor Supply Useful for Tax Policy Analysis? A Simulation Exercise," CESifo Working Paper Series 1052, CESifo Group Munich.
  5. Burtless, Gary & Hausman, Jerry A, 1978. "The Effect of Taxation on Labor Supply: Evaluating the Gary Negative Income Tax Experiments," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 1103-30, December.
  6. Eissa, Nada & Liebman, Jeffrey B, 1996. "Labor Supply Response to the Earned Income Tax Credit," The Quarterly Journal of Economics, MIT Press, vol. 111(2), pages 605-37, May.
  7. Eissa, Nada & Kleven, Henrik Jacobsen & Kreiner, Claus Thustrup, 2008. "Evaluation of four tax reforms in the United States: Labor supply and welfare effects for single mothers," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 795-816, April.
  8. Daniel Feenberg & Elisabeth Coutts, 1993. "An introduction to the TAXSIM model," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(1), pages 189-194.
  9. Auerbach, Alan J., 2002. "The Bush Tax Cut and National Saving," National Tax Journal, National Tax Association, vol. 55(3), pages 387-407, September.
  10. Thomas J. Kniesner & James P. Ziliak, 2000. "Tax Reform and Automatic Stabilization," Econometric Society World Congress 2000 Contributed Papers 0788, Econometric Society.
  11. Robert E. Moore & Mary Mathewes Kassis & Julie L. Hotchkiss, 1997. "Running hard and falling behind: A welfare analysis of two-earner families," Journal of Population Economics, Springer, vol. 10(3), pages 237-250.
  12. Robert A Moffitt & Mark Wilhelm, 2000. "Taxation and the Labor Supply - Decisions of the Affluent," Economics Working Paper Archive 414, The Johns Hopkins University,Department of Economics.
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