Taxation and Married Female Labor Supply - A Study of the Swedish Separate Filing Reform of Labor Income in 1971

Abstract: Sweden's separate filing reform of labor income in 1971 was important for the decision of wives, often secondary earners historically, regarding whether or not to start working in the market. In this paper, we develop a static model of labor supply, exclusively focusing on the labor supply decision of the wife. We estimate the importance of a change in the labor income tax filing- and tax rate structure for the Labor Force Participation (LFP) rate. We also consider the impact of variation in the intra-household labor income gap during this period, as well as the change in the labor income distribution composition. The results indicate a significant positive labor supply reaction along the extensive margin. Our findings bear relevance for countries with an aging population currently using a joint filing system of labor income. These countries can activate a potentially important part of the labor supply reserve to accommodate future rises in the demand for labor.