The U.S. Tax-Transfer System and Low-Income Households: Savings, Labor Supply, and Household Formation

Salvador Ortigueira and Nawid Siassi

Review of Economic Dynamics, 2022, vol. 44, 184-210

Abstract: Eligibility and benefits for anti-poverty income transfers in the U.S. are based on both the means and the household characteristics of applicants, such as their filing status, living arrangement, and marital status. In this paper we develop a dynamic structural model to study the effects of the U.S. tax-transfer system on the decisions of non-college-educated workers with children. In our model workers face uninsurable idiosyncratic risks and make decisions on savings, labor supply, living arrangement, and marital status. We find that the U.S. anti-poverty policy distorts the cohabitation/marriage decision of single mothers, providing incentives to cohabit. We also find quantitatively important effects on savings, and on the labor supply of husbands and wives. Namely, the model yields a U-shaped relationship between the earnings of one spouse and the labor supply of the other spouse, a result that we also find in the data. We show that these U-shaped relationships stem in part from the current design of anti-poverty income programs, and that the introduction of an EITC deduction on the earnings of secondary earners—as proposed in the 21st Century Worker Tax Cut Act—would increase the employment rate of the spouses of workers earning between $15K and $35K, especially of female spouses. (Copyright: Elsevier)

Keywords: Anti-poverty income transfers; household decisions; cohabitation and marriage (search for similar items in EconPapers)
JEL-codes: E21 H24 H31 J12 (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://dx.doi.org/10.1016/j.red.2021.02.010
Access to full texts is restricted to ScienceDirect subscribers and institutional members. See https://www.sciencedirect.com/ for details.

Related works:
Software Item: Code and data files for "The U.S. Tax-Transfer System and Low-Income Households: Savings, Labor Supply, and Household Formation" (2021)
Working Paper: Online Appendix to "The U.S. Tax-Transfer System and Low-Income Households: Savings, Labor Supply, and Household Formation" (2021)
Working Paper: The U.S. tax-transfer system and low-income households: Savings, labor supply, and household formation (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:issued:19-106

Ordering information: This journal article can be ordered from
https://www.economic ... ription-information/

DOI: 10.1016/j.red.2021.02.010

Access Statistics for this article

Review of Economic Dynamics is currently edited by Loukas Karabarbounis

More articles in Review of Economic Dynamics from Elsevier for the Society for Economic Dynamics Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().