Association for Public Policy Analysis & Management

Occupational difference between men and women explains a third of the gender wage gap in 2010. Studies have shown that women, particularly those who are married, take high wage penalty for amenities that help them fulfill their family obligations. While such a decision is often rational and beneficial to the family, income taxation could distort the wage-amenity tradeoff and induce married women to choose even lower-paid occupations than they would otherwise. In this paper, I examine the effect of joint taxation on occupations of married couples, taking advantage of a natural experiment in 1948 when the US federal government, for the first time in American history, allowed all married couples to file taxes jointly. This policy change did not affect those living in community property states but had consequences on those living in common law states.

I use data from the 1940 and 1950 Censuses, and estimate a difference-in-differences model combined with Heckman selection correction to account for endogenous labor force participation, where local business cycles serve as the exclusion restriction. I find that the policy change in 1948 led married women in highly-educated couples to choose occupations that paid 3.5% lower in median annual income. When decomposing this effect, I find that it was driven almost entirely by women choosing occupations that paid lower weekly wages instead of occupations with typically fewer weeks worked per year. These effects were stronger among older wives than among younger wives. In fact, joint taxation only had statistically significant effects on wives aged 25 or older, and the magnitudes of these effects increased with age. Married men's occupations were not affected by the policy change. These results are robust to controlling for World War II mobilization rates, industrial composition, and migration patterns across states.

My findings are consistent with a theoretical framework in which joint taxation has a positive income effect on the whole family, but raises marginal tax rates on the secondary earner, who is typically the wife, and lowers marginal tax rates on the primary earner, who is typically the husband. These findings also support my theoretical prediction that joint taxation has stronger effects on couples that earn higher total incomes and have larger husband-wife earning gaps, who are typically older couples in my data set. My paper suggests that joint taxation does reinforce differences in occupational choice by gender.