Taxes and Marriage: A Two-Sided Search Analysis

Hector Chade and Gustavo Ventura

International Economic Review, 2002, vol. 43, issue 3, 955-986

Abstract: This article analyzes the effects of differential tax treatment of married and single individuals in the United States on marriage formation and composition, divorce, and labor supply. We develop a marriage-market model with search frictions and heterogeneous agents that is sufficiently rich to capture key elements of the problem under consideration. We then calibrate the model and use it to evaluate the quantitative effects of several tax reforms aimed at making the tax law neutral with respect to marital status. We find that these reforms (i) systematically increase the labor supply of married females, with changes ranging from 0.3 to 10.1 percent; (ii) have substantial effects on the correlation of spouses' incomes, which changes from 0.2 to values between 0.185 and 0.334; (iii) can lead to either an increase or decrease in the fraction of people married, with changes that range from - 0:6 to 2.4 percent. Copyright Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association

Date: 2002
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Working Paper: Taxes and Marriage: A Two-Sided Search Analysis (2001)
Working Paper: Taxes and Marriage: A Two-Sided Search Analysis
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