Economic Incentives and Family Formation

Abstract

This study identifies the effects of economic factors that can be directly manipulated by public policy on women's union-forming decisions. We jointly model transitions made by never-married women to cohabitation or marriage, cohabiting women to or separation, and married women to divorce. We control for expected income tax burdens, maximum allowed state AFDC or TANF benefits, average state Medicaid expenditures, and parameters of state laws governing divorce and the division of property, along with a wide array of family background, personal, and environmental characteristics. We compare the estimated effects of alternative policy interventions to each other, and to the estimated effects of nonpolicy factors. In addition to focusing on the predicted effect of each factor on each individual transition (single to married, etc.), we compute their effects on the predicted probability of long-term and long-term unions of any type (marriage or cohabitation). We find that each policy variable except the income tax marriage penalty is a potentially important determinant of long-term union formation. However, several factors that are outside the control of policy makers, such as religion, childhood household composition and the presence of children also have very large, potentially offsetting effects.