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Taxation, Aggregates and the Household

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Author Info
Guner, Nezih () (Universidad Carlos III, Madrid)
Kaygusuz, Remzi () (Sabanci University)
Ventura, Gustavo () (University of Iowa)

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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 Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3318.

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Length: 51 pages
Date of creation: Jan 2008
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Handle: RePEc:iza:izadps:dp3318

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Related research
Keywords: taxation two-earner households labor force participation

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Find related papers by JEL classification:
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
J12 - Labor and Demographic Economics - - Demographic Economics - - - Marriage; Marital Dissolution; Family Structure
J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Casey B. Mulligan, 2001. "Aggregate Implications of Indivisible Labor," NBER Working Papers 8159, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  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!]
    Other versions:
  3. Jay Hong & Jose-Victor Rios-Rull, 2006. "Social Security, Life Insurance and Annuities for Families," 2006 Meeting Papers 410, Society for Economic Dynamics. [Downloadable!]
    Other versions:
  4. Hector Chade & Gustavo Ventura, 2000. "Taxes and Marriage: A Two-Sided Search Analysis," UWO Department of Economics Working Papers 200015, University of Western Ontario, Department of Economics. [Downloadable!]
    Other versions:
  5. 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)
  6. 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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  7. 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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  8. Fernández, Raquel & Guner, Nezih & Knowles, John, 2001. "Love and Money: A Theoretical and Empirical Analysis of Household Sorting and Inequality," CEPR Discussion Papers 3040, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  9. 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.
  10. Nezih Guner & Gustavo Ventura & Xu Yi, . "Macroeconomic Implications of Size-Dependent Policies," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics. [Downloadable!] (restricted)
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  11. 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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  12. 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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  13. Nezih Guner & Jeremy Greenwood, 2004. "Marriage and Divorce since World War II: Analyzing the Role of Technological Progress on the Formation of Households," 2004 Meeting Papers 65, Society for Economic Dynamics. [Downloadable!]
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  14. 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!]
  15. 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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  16. 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)
  17. 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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