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Taxation, Aggregates and the Household

Nezih Guner (), Remzi Kaygusuz () and Gustavo Ventura

No 6702, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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

Keywords: labour force participation; taxation; two-earner households (search for similar items in EconPapers)
JEL-codes: E62 H31 J12 J22 (search for similar items in EconPapers)
Date: 2008-02
New Economics Papers: this item is included in nep-dge, nep-mac and nep-pub
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Working Paper: Taxation, aggregates and the household (2008) Downloads
Working Paper: Taxation, Aggregates and the Household (2008) Downloads
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