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Targeting Fertility and Female Participation Through the Income Tax

  • Azmat, Ghazala

    ()

    (Queen Mary, University of London)

  • Gonzalez, Libertad

    ()

    (Universitat Pompeu Fabra)

We evaluate the effect of a 2003 reform in the Spanish income tax on fertility and the employment of mothers with small children. The reform introduced a tax credit for working mothers with children under the age of three, while also increasing child deductions for all households with children. Theoretically, given the interplay of these two components, the expected effect of the reform is ambiguous on both outcomes. We find that the combined reforms significantly increased both fertility (by almost five percent) and the employment rate of mothers with children under three (by two percent). These effects were more pronounced among less-educated women. In addition, to disentangle the impact of the two reform components, we use an earlier reform that increased child deductions in 1999. We find that the child deductions affect mothers' employment negatively, which implies that the 2003 tax credit would have increased employment even more (up to five percent) in the absence of the change in child deductions.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4405.

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Length: 50 pages
Date of creation: Sep 2009
Date of revision:
Publication status: published in: Labour Economics, 2010, 17 (3), 487-502
Handle: RePEc:iza:izadps:dp4405
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  1. Angrist, Joshua D & Evans, William N, 1998. "Children and Their Parents' Labor Supply: Evidence from Exogenous Variation in Family Size," American Economic Review, American Economic Association, vol. 88(3), pages 450-77, June.
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  16. Sánchez-Mangas, Rocio & Sánchez-Marcos, Virginia, 2008. "Balancing family and work: The effect of cash benefits for working mothers," Labour Economics, Elsevier, vol. 15(6), pages 1127-1142, December.
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