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S. Ortigueira, N. Siassi:
"The U.S. Tax-Transfer System and Low-Income Households: Savings, Labor Supply, and Household Formation";
Review of Economic Dynamics, * (2021), 1 - 27.

Eligibility and benefits for anti-poverty income transfers in the U.S. are based on both the means
and the household characteristics of applicants, such as their filing status, living arrangement, and
marital status. In this paper we develop a dynamic structural model to study the effects of the
U.S. tax-transfer system on the decisions of non-college-educated workers with children. In our
model workers face uninsurable idiosyncratic risks and make decisions on savings, labor supply,
living arrangement, and marital status. We find that the U.S. anti-poverty policy distorts the
cohabitation/marriage decision of single mothers, providing incentives to cohabit. We also find
quantitatively important effects on savings, and on the labor supply of husbands and wives. Namely,
the model yields a U-shaped relationship between the earnings of one spouse and the labor supply of
the other spouse, a result that we also find in the data. We show that these U-shaped relationships
stem in part from the current design of anti-poverty income programs, and that the introduction of
an EITC deduction on the earnings of secondary earners-as proposed in the 21st Century Worker
Tax Cut Act-would increase the employment rate of the spouses of workers earning between $15K
and $35K, especially of female spouses.

Anti-poverty income transfers, household decisions, cohabitation and marriage.

http://dx.doi.org/10.1016/j.red.2021.02.010

https://publik.tuwien.ac.at/files/publik_298521.pdf