Working Paper: NBER ID: w23972
Authors: Margherita Borella; MariaCristina De Nardi; Fang Yang
Abstract: In the U.S., 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. We study the effects of eliminating these marriage-related provisions on the labor supply and savings of two different cohorts. To do so, we estimate a rich life-cycle model of couples and singles using the Method of Simulated Moments (MSM) on the 1945 and 1955 birth-year cohorts. 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. We find that these marriage-related provisions reduce the participation of married women over their life cycle, the participation of married men after age 55, and the savings of couples. These effects are large for both the 1945 and 1955 cohorts, even though the latter had much higher labor market participation of married women to start with.
Keywords: marriage-related taxes; social security benefits; labor supply; savings; lifecycle model
JEL Codes: D15; E21; H3; 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 market participation among married women at age 25 (J49) |
| Elimination of marriage-related provisions (J12) | Increase in labor market participation among married women at age 45 (J49) |
| Elimination of marriage-related provisions (J12) | Increase in labor market participation of married men after age 55 (J26) |
| Current structure of marriage-related taxes and social security benefits (J12) | Decrease in savings for married couples by age 70 (D14) |