Abstract
AbstractItaly has the lowest labor supply of married women among EU countries. Moreover, the participation rate of married women is positively correlated with their husbands’ income. We show that these two features can be partly explained by the tax system: a high tax rate together with tax credits and transfers raise the burden of two-earner households, generating disincentives to work. We estimate two structural models of labor supply: one where the husband’s labor supply is inelastic and one with joint couple decisions. Then we use the estimated parameters to simulate the effects of alternative revenue-neutral tax systems on labor supply. We find that working tax credit and gender-based taxation boost it, with the effects of the former being concentrated on low educated women. Conversely, joint taxation implies a drop in the participation rate.JEL codes:J21, J22, H31
Highlights
The labor force participation of Italian married women is about 60 percent, the lowest percentage among EU countries
We show that joint taxation implies a substantial drop in the participation of married women and a negative correlation between participation rate and husband’s income
2.1 Empirical evidence we describe the main characteristics of the Italian labor market in 20072011 and how it differs from the other EU-SILC countries, especially Spain4
Summary
The labor force participation of Italian married women is about 60 percent, the lowest percentage among EU countries. The tax system is characterized by a set of tax credits and cash transfers for children and non-working spouses, which are decreasing functions of the household income. The combination of these elements raises the tax burden, especially on two-earner households, generating disincentives to participate in the labor force for married women who are typically the second earner of the family. Another important paper in this branch is the one by Colombino and Del Boca (1990) We enrich their results by showing that the model is able to reproduce the positive correlation between wife’s labor force participation rate and husband’s income.
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