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Taxation and Labor Force Participation: The Case of Italy

Author

Listed:
  • Fabrizio Colonna

    () (Banca d'Italia)

  • Stefania Marcassa

    () (Paris School of Economics)

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 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.

Suggested Citation

  • Fabrizio Colonna & Stefania Marcassa, 2011. "Taxation and Labor Force Participation: The Case of Italy," Working Papers 2011-021, Human Capital and Economic Opportunity Working Group.
  • Handle: RePEc:hka:wpaper:2011-021
    Note: FI
    as

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    File URL: http://humcap.uchicago.edu/RePEc/hka/wpaper/Colonna_Marcassa_2011_taxation-labor-force.pdf
    File Function: First version, July 31, 2011
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The excessive taxation of married couples in Italy
      by Economic Logician in Economic Logic on 2011-11-17 21:55:00

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    Cited by:

    1. Giuseppe De Luca & Claudio Rossetti & Daniela Vuri, 2012. "In-Work Benefits for Married Couples: An Ex-Ante Evaluation of EITC and WTC Policies in Italy," CEIS Research Paper 244, Tor Vergata University, CEIS, revised 23 Jul 2012.

    More about this item

    Keywords

    female labor force participation; Italian tax system; marginal tax rate; joint taxation; gender-based taxation; working tax credit;

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