Low-Income Families, Maternal Labor Supply, and Welfare Reform

Arbeitspapier

In this paper, we examine reforms that alleviate large employment disincentives induced by child-related transfers for married mothers. We develop a life-cycle model where married couples face labor market, child care and fertility risk, and make joint labor supply and consumption-saving decisions. The evolution of female human capital is endogenous and shaped by mothers’ employment decisions. We calibrate the model to the U.S. using data from the Current Population Survey. We show that participation tax rates exceed 25 percent for most mothers in our sample, and can be as high as 60 percent when including child care expenses. We then evaluate reforms to existing tax credits for working couples. We find that (i) expanding child care tax credits and (ii) introducing a secondary earner EITC deduction lead to substantially higher employment rates among married mothers. Both reforms are easily implementable, self-financing, and welfare-improving. A combination of both reforms closes the maternal employment gap altogether.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECON WPS - Working Papers in Economic Theory and Policy ; No. 01/2024

Classification and Topics

• Classification: Wirtschaft ; Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes ; Fiscal Policies and Behavior of Economic Agents: Household ; Marriage; Marital Dissolution; Family Structure; Domestic Abuse ; Time Allocation and Labor Supply
• Subject: Family labor supply ; Child-related transfers ; Income taxation

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Garstenauer, Viola ; Siassi, Nawid
• Event: Veröffentlichung
• (who): TU Wien, Institute of Statistics and Mathematical Methods in Economics, Economics Research Unit
• (where): Vienna
• (when): 2024

Further information

• Handle: http://hdl.handle.net/10419/281162
• Last update: 10.03.2025, 11:44 AM CET