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Taxation, aggregates and the household

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Author Info
Nezih Guner
Remzi Kaygusuz
Gustavo Ventura

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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 labor supply. We restrict our model with observations on gender and skill premia, labor 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 labor supply: while hours per-worker display small increases, total hours and female labor 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 labor 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.

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Paper provided by Federal Reserve Bank of Minneapolis in its series Working Papers with number 660.

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Date of creation: 2008
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Handle: RePEc:fip:fedmwp:660

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Keywords: Taxation

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  1. Casey B. Mulligan, 2001. "Aggregate Implications of Indivisible Labor," NBER Working Papers 8159, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Edward C. Prescott, 2004. "Why do Americans work so much more than Europeans?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Jul, pages 2-13. [Downloadable!]
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  3. Richard Rogerson, 2006. "Understanding Differences in Hours Worked," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(3), pages 365-409, July. [Downloadable!] (restricted)
  4. Albanesi, Stefania & Olivetti, Claudia, 2007. "Gender Roles and Technological Progress," CEPR Discussion Papers 6352, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  5. Ventura, Gustavo, 1999. "Flat tax reform: A quantitative exploration1," Journal of Economic Dynamics and Control, Elsevier, vol. 23(9-10), pages 1425-1458, September. [Downloadable!] (restricted)
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  6. Shinichi Nishiyama and Kent Smetters, 2005. "Consumption Taxes and Economic Efficiency with Idiosyncratic Wage Shocks," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 1088-1115, October.
  7. Guner, Nezih & Ventura, Gustavo & Xu, Yi, 2007. "Macroeconomic Implications of Size-Dependent Policies," CEPR Discussion Papers 6138, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  8. Jeremy Greenwood & Ananth Seshadri & Mehmet Yorukoglu, 2005. "Engines of Liberation," Review of Economic Studies, Blackwell Publishing, vol. 72(1), pages 109-133, 01. [Downloadable!] (restricted)
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  9. Conesa, Juan Carlos & Krueger, Dirk, 2006. "On the optimal progressivity of the income tax code," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1425-1450, October. [Downloadable!] (restricted)
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  10. Larry E. Jones & Rodolfo E. Manuelli & Ellen R. McGrattan, 2003. "Why are married women working so much?," Staff Report 317, Federal Reserve Bank of Minneapolis. [Downloadable!]
  11. Gertler, Mark, 1999. "Government debt and social security in a life-cycle economy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 50, pages 61-110, June. [Downloadable!] (restricted)
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  12. David Altig et al., 2001. "Simulating Fundamental Tax Reform in the United States," American Economic Review, American Economic Association, vol. 91(3), pages 574-595, June. [Downloadable!] (restricted)
  13. Cho, Jang-Ok & Rogerson, Richard, 1988. "Family labor supply and aggregate fluctuations," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 233-245. [Downloadable!] (restricted)
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