Working Paper: CEPR ID: DP6702
Authors: Nezih Guner; Remzi Kaygusuz; Gustavo Ventura
Abstract: We evaluate reforms to the U.S. tax system in a dynamic setup 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, and the structure of marital sorting. We study four revenue-neutral tax reforms: a proportional consumption tax, a proportional income tax, a progressive consumption tax, and a reform in which married individuals file taxes separately. Our findings indicate that tax reforms are accompanied by large and differential effects on labour supply: while hours per-worker display small increases, total hours and female labour force participation increase substantially. Married females account for more than 50% of the changes in hours associated to reforms, and their importance increases sharply for values of the intertemporal labour supply elasticity on the low side of empirical estimates. Tax reforms in a standard version of the model result in output gains that are up to 15% lower than in our benchmark economy.
Keywords: Labour force participation; Taxation; Two-earner households
JEL Codes: E62; H31; J12; J22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Proportional consumption tax (H29) | Increase in total hours worked (J29) |
| Proportional consumption tax (H29) | Increase in female labor force participation (J21) |
| Tax reforms (H29) | Labor supply behavior of married females (J22) |
| Lower intertemporal labor supply elasticity (J29) | Increased contribution of married females to changes in labor hours (J49) |
| Household structure and tax policy (H31) | Economic output (E23) |