DP12390 Marriage-related policies in an estimated life-cycle model of households' labor supply and savings for two cohorts

Author(s): Margherita Borella, Mariacristina De Nardi, Fang Yang
Publication Date: October 2017
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Programme Areas: Public Economics, Macroeconomics and Growth
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=12390

In the U.S., both taxes and old age Social Security benefits explicitly depend on one's marital status. We study the effects of eliminating these marriage-related provisions on the labor supply and savings of two different cohorts. To do so, we estimate a rich life-cycle model of couples and singles using the Method of Simulated Moments (MSM) on the 1945 and 1955 birth-year cohorts. 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. We find that these marriage-related provisions reduce the participation of married women over their life cycle, the participation of married men after age 55, and the savings of couples. These effects are large for both the 1945 and 1955 cohorts, even though the latter had much higher labor market participation of married women to start with.