Are Marriage-Related Taxes and Social Security Benefits Holding Back Female Labor Supply?

In the U.S., both taxes and old age Social Security benefits depend on one's marital status and tend to discourage the labor supply of the secondary earner. To what extent are these provisions holding back female labor supply? We estimate a rich life-cycle model of labor supply and savings for couples and singles using the Method of Simulated Moments (MSM) on the 1945 and 1955 birth-year cohorts and we use it to evaluate what would happen without these provisions. Our model matches well the life cycle profiles of labor market participation, hours, and savings for married and single people and generates plausible elasticities of labor supply. Eliminating marriage-related provisions drastically increases the participation of married women over their entire life cycle, reduces the participation of married men after age 55, and increases the savings of couples in both cohorts, including the later one, which has similar participation to that of more recent generations. If the resulting government surplus were used to lower income taxation, there would be large welfare gains for the vast majority of the population.

Author contact info:Margherita BorellaUniversità di TorinoDipartimento di Scienze Economico-Socialie Matematico-StatisticheTorino, ItalyE-Mail: margherita.borella@unito.itMariacristina De NardiFederal Reserve Bank of Minneapolis90 Hennepin AveMinneapolis, MN 55401E-Mail: denardim@nber.orgFang YangLouisiana State UniversityDepartment of Economics, 2317Business Education Complex,Nicholson ExtensionBaton Rouge, LA 70803Tel: 225-578-3803E-Mail: fyang@lsu.edu