Taxation, Aggregates and the Household

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IZA Seminar

Place: Schaumburg-Lippe-Str. 9, 53113 Bonn

Date: 18.10.2007, 12:15 - 13:30


Presentation by 

Nezih Guner (CEMFI, Madrid)


We evaluate reforms to the U.S. tax system in a dynamic setup with heterogeneous married and single households, and with an operative extensive margin in labor supply. We restrict our model with observations on gender and skill premia, labor force participation of married females across skill groups, and the structure of marital sorting. Replacing current income taxes by a proportional consumption tax increases steady-state output by about 11.2%. This increase is accompanied by differential effects on labor supply: while per-worker hours increase by about 2.7%, the labor force participation of married females increases by 7.3% and their total hours by 10.6%. Married females account for about 59% (50%) of the total increase in labor hours (labor supply). A progressive consumption tax can lead to much smaller rises in output, hours per worker, and labor force participation than a proportional consumption tax. Nevertheless, married females in this case account for up to 80% (65%) of the rise in labor hours (labor supply).

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