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Taxes, the Earned Income Tax Credit, and Marital Status

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  • Dan T. Rosenbaum

Abstract

A common criticism of tax and welfare policy is that these policies create disincentives for marriage, spurring recent calls for "welfare reform" or eliminating the "marriage penalty" in the federal income tax system. These criticisms are lobbied in the midst of a literature with little conclusive evidence on the effect of these policies on marriage. Changes since the mid-1980s in federal income taxes (especially the Earned Income Tax Credit), welfare (AFDC, TANF, and Food Stamps), Medicaid, and child care provision have dramatically altered the incentives to marry or stay married. It is this laboratory of legislative changes that will be used to test the responsiveness of marriage and divorce rates to changes in incentives, primarily those due to the changes in taxes. I use a method similar to Meyer and Rosenbaum (NBER WP #7363) to carefully characterize the incentives created by the federal income tax system, including the EITC. Using data from the SIPP and March CPS, I examine the responsiveness of marriage and divorce to changes in tax incentives and welfare waivers. My results suggest that it is not possible to rule out large effects of tax incentives on marriage, although the estimated effects are quite sensitive to how incentives are measured and often are not robust across different sub-samples of the data. The results also suggest that entry into marriage is more responsive to tax incentives than is exit from marriage. Welfare waivers appear to have a negligible effect on marriage decisions. Two of the primary contributions of this paper are (1) a better methodology to characterize the changes in incentives induced by policy and (2) more of a focus on transitions into and out of marriage.

Suggested Citation

  • Dan T. Rosenbaum, 2000. "Taxes, the Earned Income Tax Credit, and Marital Status," JCPR Working Papers 177, Northwestern University/University of Chicago Joint Center for Poverty Research.
    • Handle: RePEc:wop:jopovw:177
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    References listed on IDEAS

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    1. Moffitt, Robert, 1992. "Incentive Effects of the U.S. Welfare System: A Review," Journal of Economic Literature, American Economic Association, vol. 30(1), pages 1-61, March.
    2. Robert Moffitt, 1994. "Welfare Effects on Female Headship with Area Effects," Journal of Human Resources, University of Wisconsin Press, vol. 29(2), pages 621-636.
    3. Alm, James & Whittington, Leslie A., 1995. "Does the Income Tax Affect Marital Decisions?," National Tax Journal, National Tax Association, vol. 48(4), pages 565-72, December.
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    Cited by:

    1. Marianne Bitler & Jonah Gelbach & Hilary Hoynes & Madeline Zavodny, 2004. "The impact of welfare reform on marriage and divorce," Demography, Springer;Population Association of America (PAA), vol. 41(2), pages 213-236, May.
    2. Salvador Ortigueira & Nawid Siassi, 2022. "The U.S. Tax-Transfer System and Low-Income Households: Savings, Labor Supply, and Household Formation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 44, pages 184-210, April.
    3. Gustavo J. Bobonis, 2011. "The Impact of Conditional Cash Transfers on Marriage and Divorce," Economic Development and Cultural Change, University of Chicago Press, vol. 59(2), pages 281-312.
    4. Salvador Ortigueira & Nawid Siassi, 2022. "The U.S. Tax-Transfer System and Low-Income Households: Savings, Labor Supply, and Household Formation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 44, pages 184-210, April.
    5. Salvador Ortigueira & Nawid Siassi, 2016. "Anti-poverty Income Transfers in the U.S.: A Framework for the Evaluation of Policy Reforms," Working Papers 2016-04, University of Miami, Department of Economics.
    6. Marianne Bitler & Jonah Gelbach & Hilary Hoynes & Madeline Zavodny, 2004. "The impact of welfare reform on marriage and divorce," Demography, Springer;Population Association of America (PAA), vol. 41(2), pages 213-236, May.
    7. Chris Herbst, 2011. "The Impact of the Earned Income Tax Credit on Marriage and Divorce: Evidence from Flow Data," Population Research and Policy Review, Springer;Southern Demographic Association (SDA), vol. 30(1), pages 101-128, February.

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