Taxation and Labor Force Participation: The Case of Italy

51 Pages Posted: 1 Aug 2013

Date Written: June 21, 2013

Abstract

Women’s labor force participation is lowest in Italy among the OECD countries. Moreover, the participation rate of married women is positively correlated with their husbands' income. We show that high tax rates together with tax credits and transfers raise the burden for two-earner households, generating disincentives to work. We estimate a structural labor supply model for women and use the estimated parameters to simulate the effects of alternative revenue-neutral tax systems. We find that joint taxation implies a drop in the participation rate. Conversely, provisions for a working tax credit and gender-based taxation boost it; the effects of the former are concentrated among women with little schooling.

Keywords: female labor force participation, taxation

JEL Classification: J21, J22, H31

Suggested Citation

Colonna, Fabrizio and Marcassa, Stefania, Taxation and Labor Force Participation: The Case of Italy (June 21, 2013). Bank of Italy Occasional Paper No. 191, Available at SSRN: https://ssrn.com/abstract=2303708 or http://dx.doi.org/10.2139/ssrn.2303708

Fabrizio Colonna (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Stefania Marcassa

University of Cergy-Pontoise ( email )

33 Boulevard du Port
Cergy-Pontoise Cedex, Cedex 95011
France

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