Journal Article

Taxation and Household Labour Supply

Nezih Guner, Remzi Kaygusuz and Gustavo Ventura

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 79, issue 3, pages 1113-1149
Published in print July 2012 | ISSN: 0034-6527
Published online December 2011 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1093/restud/rdr049
Taxation and Household Labour Supply

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  • Demand and Supply of Labour
  • Demographic Economics
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  • Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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We evaluate reforms to the U.S. tax system in a life cycle set-up with heterogeneous married and single households and with an operative extensive margin in labour supply. We restrict our model with observations on gender and skill premia, labour-force participation of married females across skill groups, children, and the structure of marital sorting. We concentrate on two revenue-neutral tax reforms: a proportional income tax and a reform in which married individuals file taxes separately (separate filing). Our findings indicate that tax reforms are accompanied by large increases in labour supply that differ across demographic groups, with the bulk of the increase coming from married females. Under a proportional income tax reform, married females account for more than 50% of the changes in hours across steady states, while under separate filing reform, married females account for all the change in hours.

Keywords: Taxation; Two-earner households; Labour force participation; E62; H31; J12; J22

Journal Article.  18130 words.  Illustrated.

Subjects: Demand and Supply of Labour ; Demographic Economics ; Fiscal Policies and Behaviour of Economic Agents ; Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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