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Shacking Up or Shelling Out: Income Taxes, Marriage, and Cohabitation

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  • James Alm
  • Leslie Whittington
Abstract
Anecdotal evidence suggests that the income tax penalty associated with marriage contributes to the decision of a couple to live together as a married vs. a cohabiting couple. In this paper, we use household data from the Panel Study on Income Dynamics to estimate the impact of various factors, including the federal individual income tax, on a couple's decision to marry instead of cohabit. We find that the initial decision to form either a cohabiting or a married union is only marginally affected by the income tax consequences of one form of union vs. another, and other factors play a more important role. However, for those already living together as a cohabiting couple, the decision to make the transition from a cohabiting to a married couple is significantly affected by the tax consequences of such a move. Here, an increase in the income tax at legal marriage, or an increase in the marginal tax rate with marriage, has a statistically significant and negative impact on the probability of transition from cohabitation to legal marriage. However, the magnitude of the tax impact is generally small, and several other variables are more important determinants. Copyright Kluwer Academic Publishers 2003

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  • James Alm & Leslie Whittington, 2003. "Shacking Up or Shelling Out: Income Taxes, Marriage, and Cohabitation," Review of Economics of the Household, Springer, vol. 1(3), pages 169-186, September.
    • Handle: RePEc:kap:reveho:v:1:y:2003:i:3:p:169-186
    DOI: 10.1023/A:1025093300161
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    References listed on IDEAS

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    2. Barigozzi, Francesca & Cremer, Helmuth & Roeder, Kerstin, 2019. "Till taxes do us part: Tax penalties or bonuses and the marriage decision," European Economic Review, Elsevier, vol. 118(C), pages 37-50.
    3. Katherine Michelmore, 2018. "The earned income tax credit and union formation: The impact of expected spouse earnings," Review of Economics of the Household, Springer, vol. 16(2), pages 377-406, June.
    4. Elisabeth Gugl, 2009. "Income splitting, specialization, and intra-family distribution," Canadian Journal of Economics, Canadian Economics Association, vol. 42(3), pages 1050-1071, August.
    5. Lundberg, Shelly & Pollak, Robert, 2013. "Cohabitation and the Uneven Retreat from Marriage in the U.S., 1950-2010," IZA Discussion Papers 7607, Institute of Labor Economics (IZA).
    6. Fisher, Hayley, 2011. "Marriage penalties, marriage, and cohabitation," Working Papers 2011-12, University of Sydney, School of Economics.
    7. Stevenson, Adam, 2012. "The Labor Supply and Tax Revenue Consequences of Federal Same-Sex Marriage Legalization," National Tax Journal, National Tax Association;National Tax Journal, vol. 65(4), pages 783-806, December.
    8. Elias Ilin & Laurence J. Kotlikoff & Melinda Pitts, 2022. "Is Our Fiscal System Discouraging Marriage? A New Look at the Marriage Tax," NBER Working Papers 30159, National Bureau of Economic Research, Inc.
    9. Janet Holtzblatt & Swati Joshi & Nora Cahill & William Gale, 2023. "Racial Disparities in the Income Tax Treatment of Marriage," NBER Chapters, in: Tax Policy and the Economy, Volume 38, pages 25-60, National Bureau of Economic Research, Inc.
    10. Amy Farmer & Andrew Horowitz, 2015. "Strategic non-marital cohabitation: theory and empirical implications," Journal of Population Economics, Springer;European Society for Population Economics, vol. 28(1), pages 219-237, January.
    11. Elias Ilin & Laurence J. Kotlikoff & M. Melinda Pitts, 2022. "Pink and Poverty Taxes on Marriage," Policy Hub, Federal Reserve Bank of Atlanta, vol. 2022(12), October.
    12. James Alm & Weizheng Lai & Xun Li, 2022. "Housing market regulations and strategic divorce propensity in China," Journal of Population Economics, Springer;European Society for Population Economics, vol. 35(3), pages 1103-1131, July.
    13. Fisher, Hayley, 2012. "Just a piece of paper? The effect of marriage on health," Working Papers 2012-17, University of Sydney, School of Economics.
    14. James Alm & J. Sebastian Leguizamon & Susane Leguizamon, 2023. "Race, Ethnicity, and Taxation of the Family: The Many Shades of the Marriage Penalty/Bonus," National Tax Journal, University of Chicago Press, vol. 76(3), pages 525-560.

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