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Taxation and Labor Force Participation: The Case of Italy

  • Fabrizio Colonna

    (Banca d'Italia - Banca d'Italia)

  • Stefania Marcassa


    (THEMA - Théorie économique, modélisation et applications - Université de Cergy Pontoise - CNRS)

Italy has the lowest labor force participation of women among European 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 households, 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 HAL in its series Working Papers with number hal-00869315.

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Date of creation: 02 Oct 2013
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Handle: RePEc:hal:wpaper:hal-00869315
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