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Marriage Stability, Taxation and Aggregate Labor Supply in the U.S. vs. Europe

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  • Chakraborty, Indraneel

    () (Department of Economics)

  • Stepanchuk, Serhiy

    () (Magyar Nemzeti Bank)

  • Holter, Hans A.

    () (Department of Economics)

Abstract

Americans work more than Europeans. Using micro data from the U.S. and 17 European countries, we study the contributions from demographic subgroups to these aggregate level di erences. We document that women are typically the largest contributors to the discrepancy in work hours. We also document a negative empirical correlation between hours worked and di erent measures of taxation, driven by men, and a positive correlation between hours worked and divorce rates, driven by women. Motivated by these observations, we develop a life-cycle model with heterogeneous agents, marriage and divorce and use it to study the impact of two mechanisms on labor supply: (i) di erences in marriage stability and (ii) di erences in tax systems. We calibrate the model to U.S. data and study how labor supply in the U.S. changes as we introduce European tax systems, and as we replace the U.S. divorce and marriage rates with their European equivalents. We nd that the divorce and tax mechanisms combined explain 58% of the variation in labor supply between the U.S. and the European countries in our sample.

Suggested Citation

  • Chakraborty, Indraneel & Stepanchuk, Serhiy & Holter, Hans A., 2012. "Marriage Stability, Taxation and Aggregate Labor Supply in the U.S. vs. Europe," Working Paper Series 2012:10, Uppsala University, Department of Economics.
  • Handle: RePEc:hhs:uunewp:2012_010
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    Cited by:

    1. repec:oup:restud:v:85:y:2018:i:3:p:1543-1576. is not listed on IDEAS
    2. Duval-Hernandez, Robert & Fang, Lei & Ngai, L. Rachel, 2017. "Taxes and Market Hours: The Role of Gender and Skill," FRB Atlanta Working Paper 2017-8, Federal Reserve Bank of Atlanta.
    3. Nezih Guner & Remzi Kaygusuz & Gustavo Ventura, 2014. "Income Taxation of U.S. Households: Facts and Parametric Estimates," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(4), pages 559-581, October.
    4. Holter, Hans A. & Krueger, Dirk & Stepanchuk, Serhiy, 2014. "How does tax progressivity and household heterogeneity affect Laffer curves?," CFS Working Paper Series 490, Center for Financial Studies (CFS).
    5. Bick, Alexander & Fuchs-Schündeln, Nicola, 2012. "Taxation and Labor Supply of Married Women across Countries: A Macroeconomic Analysis," CEPR Discussion Papers 9115, C.E.P.R. Discussion Papers.
    6. Groneck, Max & Wallenius, Johanna, 2017. "It Sucks to Be Single! Marital Status and Redistribution of Social Security," SSE Working Paper Series in Economics 2017:1, Stockholm School of Economics.
    7. Nezih Guner & Remzi Kaygusuz & Gustavo Ventura, 2014. "Income Taxation of U.S. Households: Facts and Parametric Estimates," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(4), pages 559-581, October.
    8. Michelle Rendall, 2018. "Female Market Work, Tax Regimes, and the Rise of the Service Sector," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 28, pages 269-289, April.
    9. Duval-Hernandez, Robert & Fang, Lei & Ngai, L. Rachel, 2018. "Social subsidies and marketization - the role of gender and skill," LSE Research Online Documents on Economics 87181, London School of Economics and Political Science, LSE Library.
    10. Alexander Bick & Nicola Fuchs-Schündeln, 2018. "Taxation and Labour Supply of Married Couples across Countries: A Macroeconomic Analysis," Review of Economic Studies, Oxford University Press, vol. 85(3), pages 1543-1576.
    11. Zhigang Feng & Kai Zhao, 2015. "Employment-Based Health Insurance and Aggregate Labor Supply," Working papers 2015-11, University of Connecticut, Department of Economics.
    12. Michelle Rendall, 2018. "Female Market Work, Tax Regimes, and the Rise of the Service Sector," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 28, pages 269-289, April.

    More about this item

    Keywords

    Aggregate Labor Supply; Taxation; Marriage; Divorce; Heterogeneous Households;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • 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

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