The Effects of Joint Taxation of Married Couples on Labor Supply and Non-wage Income

No 28, Working Papers from Department of Economics, College of William and Mary

Abstract: The United States changed its tax treatment of married couples in 1948, from a system in which each spouse paid taxes on his or her own income to a system in which a married couple is taxed as a unit. The switch from separate to joint taxation changed incentives for labor supply and asset ownership. This paper investigates the effects of the conversion to joint taxation, taking advantage of a natural experiment created by cross-state variation in property laws. Married individuals in states with community property laws had always been taxed as if each spouse had earned half of the couple's income, and thus were unaffected by the 1948 legal change. Comparing the behavior of taxpayers in affected and unaffected states indicates that the tax change is associated with a decline of 0.9-1.6 percentage points in the labor force participation rate of married women, consistent with the higher first-dollar tax rates they faced after 1948. Married women were also 0.6-1.9 percentage points less likely to have non-wage income after 1948, reflecting pre-1948 allocation of family assets to wives for tax purposes. The effects of joint taxation on married men's labor force participation and non-wage income holding are generally not statistically significant.

Keywords: joint taxation; labor supply; income shifting (search for similar items in EconPapers)
JEL-codes: H24 J22 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2006-03-23
New Economics Papers: this item is included in nep-pbe and nep-pub
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: The effects of joint taxation of married couples on labor supply and non-wage income (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:cwm:wpaper:28

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