Working Paper: CEPR ID: DP14196
Authors: MariaCristina De Nardi; Margherita Borella; Fang Yang
Abstract: In the United States, both taxes and old age Social Security benefits depend on one's marital status and tend to discourage the labor supply of the secondary earner. To what extent are these provisions holding back female labor supply? We estimate a rich life cycle model of labor supply and savings for couples and singles using the method of simulated moments (MSM) on the 1945 and 1955 birth-year cohorts and use it to evaluate what would happen without these provisions. Our model matches well the life cycle profiles of labor market participation, hours, and savings for married and single people and generates plausible elasticities of labor supply. Eliminating marriage-related provisions drastically increases the participation of married women over their entire life cycle, reduces the participation of married men after age 60, and increases the savings of couples in both cohorts, including the later one, which has similar participation to that of more recent generations. If the resulting government surplus were used to lower income taxation, there would be large welfare gains for the vast majority of the population.
Keywords: Female Labor Supply; Marriage-Related Taxes; Social Security Benefits
JEL Codes: J22; H24; H31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| elimination of marriage-related provisions (J12) | increase in labor participation of married women (J49) |
| elimination of marriage-related provisions (J12) | decrease in labor participation of married men (J29) |
| elimination of marriage-related provisions (J12) | increase in savings of couples (D14) |
| elimination of marriage-related provisions (J12) | welfare gains for the majority of the population (D69) |