"The Tax Treatment of Marriage and Its Impact on Family Formation and Labor Supply"

Author: ORCID icon orcid.org/0000-0001-9276-6596
Isaac, Elliott, Economics - Graduate School of Arts and Sciences, University of Virginia
Friedberg, Leora, Department of Economics, University of Virginia
Miller, Amalia, Department of Economics, University of Virginia
Colmer, Jonathan, Department of Economics, University of Virginia

Many developed countries institute progressive tax systems, forcing them to choose between tax equity across marital status or tax equity across family income. Greater equity across family income (i.e., jointness) can exacerbate efficiency costs and labor supply distortions. Another complication in the United States is that tax changes generally involve a change in marriage incentives as well because the United States' tax system creates inequalities between married and unmarried couples. This feature of the United States' tax system, combined with a transfer system targeted largely at single parents, creates an intricate web of family structure incentives: transfer programs for the needy often discourage marriage, while the tax system discourages marriage for some and encourages marriage for others. In this dissertation, I study the tax treatment of the family and its effects on labor supply, marriage, and divorce, in addition to the role of college selectivity in women's marriage and career outcomes.

Chapter 1 examines the impact of the tax and transfer systems on family structure decisions. I use variation from the 1990s in the Earned Income Tax Credit and welfare reform to estimate the effects on marrying and divorcing. I examine flows into and out of marriage, use test scores to predict who is most likely to be affected by the policy changes, and employ a flexible functional form to estimate heterogeneous effects. I find that low-earning single parents are more likely to marry due to the EITC expansion and lower welfare generosity, while mid-earning married parents are less likely to divorce and high-earning married parents are more likely to divorce due to the EITC expansion.

Chapter 2 provides direct evidence of the efficiency costs, tax revenue consequences, and labor supply effects of joint taxation in the United States by leveraging tax variation created by federal same-sex marriage recognition following the 2013 United States v. Windsor Supreme Court ruling. I find hours responses to taxation among predicted primary earners and labor force participation responses among predicted secondary earners. I also show that joint taxation decreases efficiency and tax revenue compared to individual taxation, with larger effect sizes for equal-earning couples. My findings suggest that there are efficiency gains to lowering tax rates for secondary earners, but whether efficiency is worth the lower associated tax equity across households remains an open question.

Chapter 3, co-authored with Suqin Ge and Amalia Miller, estimates the causal effect of college selectivity on marriage and career outcomes for women using the College and Beyond data set and Dale and Krueger's (2002) application of selection on observables and unobservables. We find that attending a more selective college increases women's formal education, the likelihood of remaining single, the likelihood of having positive earnings, and spousal education. We also argue that college selectivity increases women's earnings through the marriage market instead of through human capital directly. Our findings suggest that college selectivity decreases the labor supply gap between married and single women, and that opting out may be operating on the intensive margin of part-time work rather than labor force participation.

PHD (Doctor of Philosophy)
Joint taxation, Earned income tax credit, Marriage, Divorce, Labor supply, Same-sex marriage, College quality
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