Assessing the Welfare Impact of the 2001 Tax Reform on Dual-Earner Families

Abstract:     
The welfare impact of the 2001 income tax reform is assessed across dual-earner families with different characteristics. A household labor supply model is estimated to account for variable behavioral responses by family type. It was found that while higher education families received a larger share of the welfare gain generated from lower marginal tax rates, it was the lower education families that provided the bulk of the additional labor supply motivated by the tax reform. Differing welfare gains across families with different numbers of children were also found, highlighting the importance of allowing responses to vary across family characteristics when assessing the welfare impact of a policy change.

Number of Pages in PDF File: 35

Keywords: family labor supply, tax reform, family welfare, family utility

JEL Classification: J22, H31, H23, I31

working papers series