The labor supply of married women and spousal tax deductions in Japan - A structural estimation

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21 Citations (Scopus)

Abstract

The Japanese tax system offers an opportunity to investigate the labor supply response of married women to the income tax and the intrahousehold resource allocation mechanism, since the deductible amount from the husband's income decreases as the wife's earnings increase. Using cross-section data, I structurally estimate the labor supply of married women under the piece-wise linear budget constraint created by the Japanese tax and social security system. I find that the wife's labor supply response to her husband's decreasing deduction tends to be greater than the response to her own income tax. This suggests that not only the unitary model is rejected but also that female labor is allocated inefficiently within a family. Finally, this study shows that the choice of household model affects the predicted effect of policy reform and that the currently proposed reforms will have less of an effect on the labor supply of married women than previous studies claim.

Original languageEnglish
Pages (from-to)349-378
Number of pages30
JournalReview of Economics of the Household
Volume4
Issue number4
DOIs
Publication statusPublished - 2006 Dec

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labor supply
taxes
wife
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Structural estimation
Tax deduction
Labor supply
labor
income
reform
resources
Income tax

Keywords

  • Female labor supply
  • Income tax
  • Intrahousehold allocation
  • Spousal deduction

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)

Cite this

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AB - The Japanese tax system offers an opportunity to investigate the labor supply response of married women to the income tax and the intrahousehold resource allocation mechanism, since the deductible amount from the husband's income decreases as the wife's earnings increase. Using cross-section data, I structurally estimate the labor supply of married women under the piece-wise linear budget constraint created by the Japanese tax and social security system. I find that the wife's labor supply response to her husband's decreasing deduction tends to be greater than the response to her own income tax. This suggests that not only the unitary model is rejected but also that female labor is allocated inefficiently within a family. Finally, this study shows that the choice of household model affects the predicted effect of policy reform and that the currently proposed reforms will have less of an effect on the labor supply of married women than previous studies claim.

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