Income taxes and the timing of marital decisions

Journal of Public Economics 64 (1997) 219–240

Income taxes and the timing of marital decisionsa , b*James Alm , Leslie A. Whittington

aUniversity of Colorado at Boulder, Boulder, CO 80309 –0256, USAbGeorgetown University, Washington DC, USA

Received 1 August 1995; revised 1 June 1996

Abstract

In this paper we estimate the impact of the federal individual income tax on the timing ofmarital decisions. Anecdotal evidence suggests that the tax penalty often associated withmarriage contributes to the decision of when to marry. Using household data from the PanelStudy on Income Dynamics, we estimate various models of the probability of delayingmarriage as a function of the change in tax burden caused by marriage (as well as severalother variables). We find that there is a significant positive relationship between themarriage penalty in a year and the probability of delaying marriage until the following year.The magnitude of the effect, however, is small.

Keywords: Income taxation; Marital decisions; Marriage tax; Timing

JEL classification: H31; J121

1. Introduction

Much work on individual responses to taxation has suggested that taxes mayaffect the timing of actions even if they do not fundamentally alter the realmagnitude of the actions themselves (Slemrod, 1992). In areas as diverse as capitalgains realizations, accounting decisions, income reporting, and savings behavior, itis widely agreed that the individual income tax has a significant impact on when a

*Corresponding author.

0047-2727/97/$17.00 1997 Elsevier Science S.A. All rights reservedPII S0047-2727( 96 )01615-5

220 J. Alm, L.A. Whittington / Journal of Public Economics 64 (1997) 219 –240

transaction occurs, even if the effects of taxation on whether the transaction occurs1at all are uncertain and controversial.

Another area in which there is at least anecdotal evidence on the timing effectsof taxation is the decision to marry. There is in the United States a persistent andobservable monthly time pattern of marriage rates, as shown in Fig. 1. Monthlymarriage patterns are likely due to a variety of factors, such as school schedules oreven seasonal temperature conditions. Still, it is possible that taxes also affect thetiming of marriage. As discussed in more detail later, there is much evidence that

2the tax consequences of marriage can be quite large. Further, over the last twodecades there have been numerous stories in the American press about coupleswho delay marriage from one tax year to the next in order to avoid a tax penaltyfrom marriage, as well as other stories in which couples marry in December ratherthan January because of a reduction in taxes at marriage (Cook, 1981; Schultz,1993). These anecdotes are not limited to the United States. Recently, the Austriantax system was changed in a way that provided a much larger subsidy to marriagesconducted before the end of December than to those after the year’s end. Inresponse, there was a marriage at the Vienna courthouse every fifteen minutes for

3the entire month of December, as couples raced to beat the deadline.However, evidence linking taxes and marital timing is virtually nonexistent,

despite a large and growing literature on the economic determinants of marriageand divorce (Grossbard-Shechtman, 1993). Sjoquist and Walker (1995) andGelardi (1996) have examined those factors—like taxes—that may affect the

4timing of marital decisions. However, both of these papers use highly aggregatednational data (e.g., aggregate monthly marriage rates) in the empirical work. Theimpact of taxes on individual marriage decisions has not been examined.

In this paper we use household longitudinal data from the Panel Study ofIncome Dynamics to estimate the impact of the individual income tax on thetiming of marriage decisions of individuals. In keeping with our emphasis on thetiming effects of taxes, we limit our analysis to those individuals who eventuallyget married; that is, we do not focus on whether individuals marry at all, but

5concentrate on those factors that may affect when they change marital status. We

1The issue of timing is perhaps most discussed in the area of capital gains. See Burman andRandolph (1994) for an analysis of permanent versus transitory effects in individual responses tocapital gains tax changes, in which they discuss the importance—and difficulty—of measuring timingbehavior.

2Also, see the calculations and discussions in Feenberg (1983), Rosen (1977, 1987), Brozovsky andCataldo (1994), Feenberg and Rosen (1995) and Alm and Whittington (1996a).

3We are grateful to James Poterba for relating this anecdote.4Sjoquist and Walker (1995) find that income taxes have a small but statistically significant impact

on the timing of the aggregate marriage rate in the United States, and Gelardi (1996) estimates similaraggregate effects following tax law changes in Canada, England, and Wales.

5Note that it is possible that taxes affect the likelihood of marriage. See Alm and Whittington (1995,1996b) for empirical evidence on this issue. Also, Whittington and Alm (1997) examine the impact oftaxes (and other variables) on the probability of divorce.

J. Alm, L.A. Whittington / Journal of Public Economics 64 (1997) 219 –240 221

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find evidence that taxes have a measurable but small impact on when individualsdecide to marry. Income, pregnancy, and the birth of a new baby are also found tobe significant determinants of the timing decision, while other possible timinginfluences—gender, race, education, and second marriage—are not statisticallysignificant. Estimation of similar models for the probability of divorce indicatesthat taxes have no significant impact on the timing of divorce decisions.

The next section discusses the evolution of the income tax treatment of thefamily in the United States. Section 3 presents the theory, data, and estimationmethods. Estimation results are in Section 4, and summary and conclusions are inSection 5.

62. The income tax treatment of the family

Because of the central role of individual income taxation in our analysis, it isimportant to understand the ways in which the tax system affects the tax liabilitiesof individuals and couples. This section discusses the federal income tax treatmentof the family and the ways in which the treatment has changed over time.

The relevant issue here is the choice of the unit of taxation: the individualversus the family. In the presence of proportional income taxation, the choice ofthe unit is largely unimportant. However, when the individual income tax hasincreasing marginal tax rates, taxing the individual or the family can havesignificant tax consequences.

The federal individual income tax in the United States has varied over time inits treatment of the unit of taxation. The individual income tax was established in1913, and originally used the individual as the unit of taxation, so that allindividuals were taxed using a single progressive tax schedule not linked to maritalstatus. Such a tax system was largely marriage neutral because an individual’s taxburden did not change much upon marriage (Rosen, 1977). However, because ofthe progressive rate structure of the income tax, this system did not achievehorizontal equity across families because families with equal family income wouldnot pay equal income taxes if the incomes of the spouses in both marriages werenot equal.

The Revenue Act of 1948 changed the unit of taxation from the individual to thefamily by the adoption of income splitting for married couples. This changeallowed all married persons in the United States to aggregate and to split theirincome for federal tax purposes, and so treated families with equal incomesequally. However, the Revenue Act of 1948 also created a new differential, nowbetween married and single persons. Due to the combination of income splittingand the progressive nature of the individual income tax, a couple’s joint taxliability generally fell, sometimes significantly, when they married. This tax

6For a more detailed discussion of the issues on the choice of the tax unit, see Bittker (1975) andRosen (1977). Pechman and Engelhardt (1990) discuss the taxable unit in other countries.


reduction is termed a ‘‘marriage subsidy’’. Rosen (1987) points out that by the late1960s it was possible for a single person’s income tax burden to be as much as 40percent greater than that of a married couple with identical earnings.

Public pressure to remedy lopsided tax liabilities led to the adoption of the TaxReform Act of 1969, which established a separate tax schedule for single personsthat insured that single persons would incur a maximum tax liability of 120percent of a married couple with equal income. However, a side effect of the 1969changes was the development of the ‘‘marriage tax’’ or ‘‘marriage penalty’’.Although the tax schedule for married persons filing jointly did not change, the1969 act effectively increased the tax liability of some married tax filers relative tosingle filers, especially for couples that had very similar earnings. Marriage couldnow lead to a marked increase in income tax liabilities.

Just as single persons had objected to the marriage subsidy, married personsopposed the marriage tax generated by the new legislation. The secondary earnerdeduction was introduced in the Economic Recovery Tax Act of 1981 in part tominimize the increased tax liability felt by married couples with similar earnings,and, in combination with lower tax rates and liberalized child care credits, itgenerally resulted in a more marriage-neutral system (Feenberg, 1983). However,the secondary earner deduction was short-lived, repealed as part of the Tax ReformAct of 1986. Other changes in 1986 reduced the marriage tax. The standarddeduction for married couples was increased relative to single persons, and taxrates were significantly flattened. Overall, the 1986 act reduced the averagemarriage penalty in the tax.

However, the tax consequences of marriage were still substantial after 1986, asdemonstrated by Rosen (1987). Feenberg and Rosen (1995) conclude that taxchanges in 1990 and 1993 have further increased the potential tax effects. Asdiscussed in more detail later, our calculations also indicate that the taxconsequences of changes in marital status can be quite large and variable.

It is now well recognized that no progressive tax system can achieve both fullmarriage neutrality and horizontal equity across families. By opting for the familyas the unit of taxation via income splitting, the United States has implicitly chosento treat families with equal income equally. However, income splitting necessarilyimplies that income taxes will change with marriage and divorce. If individualsrespond to these tax effects, then the timing of marital decisions should be affectedby the marriage tax or subsidy.

3. Theory, data, and estimation issues

3.1. An economic theory of marital timing

Economic models of marriage assume that individuals decide to marry if theyexpect some positive flow of benefits from the union that is greater than that theywould receive if they remained single (Becker, 1973, 1974). Economic incentives


can therefore affect the timing of the marriage decision if they influence themagnitude or the time pattern of the costs or benefits of marriage. Likewise,factors that influence the returns to marriage will also affect decisions aboutdivorce (Becker et al., 1976).

To formalize this notion, we first consider the standard economic model of thedecision to marry. We then analyze the timing of this decision.

The Decision to Marry. As emphasized by Becker (1973), (1974), an individualdecides to marry when his or her share of commodities produced in the householdis greater if married than if single. These commodities are assumed to be measuredby some single aggregate commodity denoted Z, which is produced in thehousehold by combining market goods and time inputs. Note that the Z-good isproduced in each period by the individual, but for the moment this time dimensionof the composite good is ignored so that Z is assumed to represent the total amountof the commodity that is produced over the lifetime of the individual. Thenecessary condition for a male or female to marry is that his or her consumption ofthe household good increases with marriage, or

fmZ # Z , i 5 f, m, (1)i i

where the subscript i denotes female (f) or male (m), Z is consumption of theifmaggregate household good of a single individual i, and Z is consumption of ai

fmmarried individual. If Z is defined to equal the total income and consumptionproduced by a marriage, then the necessary condition becomes

fm fm fmZ ; Z 1 Z $ Z 1 Z . (2)f m f m

The likelihood of marriage is then affected by economic factors that change thereturns to being single or married, with marriage rates increasing if the return tomarriage increases. Again, recall that the time dimension of the Z-good is ignoredfor the moment. There are, of course, numerous noneconomic factors that mayaffect the returns to marriage.

It is straightforward to introduce income taxes in this model. Suppose forsimplicity that taxes consist of a constant marginal tax rate on market income anda lumpsum guarantee, where these income tax parameters vary for singles and formarried couples. Income taxes will now affect both the income of the individualand the cost of the household good; that is, the choice between married and singlestatus will now depend both on the total amount of taxes paid for married couplesversus single individuals, and on the marginal tax rates that individuals face.

To illustrate these tax effects, consider the production of the composite good Zi

by a single individual i. The choice of the composite good by individual i must beconsistent with the individual’s market budget constraint, which in the absence ofincome taxes is pX 5w L , where p is the price of the market good X consumedi i i i

by individual i, w is the market wage rate of individual i, and L is the number ofi i

hours worked by individual i in the market. Since total time T is divided betweeni


market work L and household work H , the budget constraint can be rewritten asi i

pX 1w H 5w T . Assume for simplicity that the general production function of Zi i i i i i

takes the form X 5a Z and H 5b Z , where a (b ) represents the fixed amount ofi i i i i i i i

X (H ) required by individual i to produce one unit of Z . The budget constrainti i i

then becomes (a p1b w )Z 5w T , ori i i i i i

w Ti i]]]]Z 5 , i 5 f, m, (3)i (a p 1 b w )i i i

where the subscript i denotes female or male. The numerator of Z represents thei

‘‘full income’’ of the individual, and the denominator is the ‘‘full price’’ of theZ-good, consisting of the market cost per unit of Z (or a p) and the time ori i

opportunity cost of Z (or b w ). A similar expression can be derived for a marriedi i i

couple.The introduction of taxes changes the expression for the composite good of the

single female and male to

[(w T )(1 2 t) 1 f]i i]]]]]]Z 5 , i 5 f, m, (4)i a p 1 b w (1 2 t)]i i i

where t is the marginal tax rate facing single individuals and f is their lumpsumguarantee. Similarly, the composite good of the married couple now equals

[(w T 1 w T )(1 2 t9) 1 f9]f f m mfm]]]]]]]]]]Z 5 (5)fm fm fm[a p 1 (b w 1 b w )(1 2 t9)]f f m m

where (t9, f9) are the tax parameters facing a married couple that files a jointfmreturn, a is the amount of the market good necessary to produce one unit of the

fm fmmarried household good, and (b , b ) denote the amount of female and malef mfmtime of the married couple needed per unit of Z . The condition for marriage

remains unchanged.Note from Eqs. (4) and (5) that income taxes affect the marriage decision in two

ways, through their impact on full income and on the cost of the household good;that is, the choice between married and single status now depends both on the totalamount of taxes paid on the full income for married couples versus singleindividuals and on the marginal tax rates that they face. If marriage increases totaltaxes without changing the marginal tax rate, then the gains from marriage clearlyfall. However, if marriage increases the marginal tax rate alone, then there areconflicting effects of taxation on the gains from marriage: an increase in themarginal tax rate at marriage increases the taxes paid by married couples, but ahigher marginal tax rate also reduces the cost of the household good. In any event,measures of both the total taxes paid and the marginal tax rates faced by couplesversus singles affect the marriage decision.

The Timing of the Marriage Decision. Consider now the impact of taxes on thetiming of the decision. Assume that the individual has already decided that the


total returns to marriage exceed the returns to single status, but must stilldetermine whether to marry now (in period t) or one year later (in period t11).Using a subscript t to denote the time sequence of the Z-good, the return tomarriage NOW for individual i is denoted Z and equalsi,NOW

fm fmZ 5 (Z ) 1 (Z ) , i 5 f, m, (6)i,NOW i t i t11

while the return to marriage LATER is Z , ori,LATER

fmZ 5 (Z ) 1 (Z ) , i 5 f, m. (7)i,LATER i t i t11

The individual will marry now if

Z . Z , i 5 f, m, (8)i,NOW i,LATER

or if

fm(Z ) . (Z ) , i 5 f, m, (9)i t i t

and he or she will marry later if the inequality is reversed. Note that the return tofmmarriage in future years, or (Z ) , is irrelevant to the individual’s current-yeari t11

timing decision because the individual will receive this amount of the compositegood regardless of what he or she decides now. Instead, the decision to marry nowor later depends simply upon the relative magnitudes of the Z-good in the currentperiod. If the individual’s current-year share of consumption is greater withmarriage than with single status, then he or she will marry now. Otherwise, the

7individual will delay the marriage decision to the next year.There are numerous factors that may affect the levels of consumption of the

composite good in the current year. School or work schedules, one’s age, thepresence of holidays, or the existence of a pregnancy may influence theconsumption of the composite good and so affect the timing of events. Incometaxes, however, seem likely to play an especially important role in the comparisonof current-year married versus single consumption of the Z-good because taxes canchange significantly over a short period of time with simply a change in maritalstatus. This framework therefore suggests that a couple is likely to delay marriagefrom one tax year to the next in the presence of a current-year marriage tax, whilethe presence of a current-year marriage subsidy will encourage the couple to marryin the current year. The timing impact of changes in the marginal tax rates facedby individuals versus couples is ambiguous.

This framework also suggests that taxation should have no influence on thetiming of marriage within a year. Delaying marriage from January to May, forexample, does not result in any change in the tax liability or the marginal tax rates

7It is of course possible that the individuals may decide to cohabit without marriage. This possiblechoice is not considered in our current work.


8for that year. Note that this framework is easily adapted to the timing of thedivorce decision.

3.2. Data

Our data are drawn from the 1989 Panel Study on Income Dynamics (PSID).9The PSID originated in 1968 with 5000 families. In 1985 a retrospective marital

history of all current respondents to the survey was conducted for the PSID, andthe marital history has been updated through 1989. Respondents were specificallyasked the month and year that their first and most recent marriages occurred.Respondents were also asked if, how, and when those marriages ended. Thisretrospective history makes the PSID ideally suited to examination of the marriagetiming decision.

The sample used in estimating the effect of taxes on the timing decision is allrespondent couples aged 18 and over who report a first or second marriage during

10the period 1967 to 1989. (Recall that we are not estimating the impact of taxeson the probability of marriage, but rather on the timing of the event.) There are2897 couples who meet these criteria. We then randomly select only one coupleconnected with each original PSID family so as to minimize the influence ofunobserved family effects. From these respondent couples we randomly select oneindividual in each couple as our sample member. Finally, we limit our sample toindividuals who married in either the first or fourth quarters of the year. We useonly one marital event per individual, so that if a person reports both a first andsecond marriage in the period we use only the observation on the first marriage.This leaves us with a sample of 945 marriages, for which there is one observation.Weighted sample characteristics are in Table 1.

The variable of primary interest is the marriage tax or subsidy. The change intax liability caused by a change in marital status depends on statutory individualincome tax rates and brackets, deductions and exemptions, and the incomes of theindividual and the spouse. The PSID now generates estimates of the federal taxliability of respondent households, but it has not made these calculations for allyears, and, especially in the early years, there are numerous missing values for thetax liability. Of course, the PSID does not calculate the change in taxation uponmarriage. We therefore must compute the single and married tax liabilities.

We calculate the marriage tax or subsidy in several steps. First, we calculate aperson’s single tax liability in the last year before marriage, based on his or herreported income and the federal tax code of the relevant year. This liability

8However, it is possible that those with higher tax burdens of marriage will want to amortize theburden over the longest period possible, and will therefore marry early in the year versus later.

9For information on the structure of the PSID sample and response rates, see Becketti et al. (1988)and Institute for Social Research (1984, 1991).

10The first interview year of the PSID is 1968, but income data collected in that year is for 1967.


Table 1Weighted sample characteristics of individuals who report a first or second marriage in the first orfourth quarter, 1967–1989 (Dollar amounts in 1983–84 dollars)

Variable Description Mean(StandardDeviation)

Married in First Quarter Dummy variable equal to 1 if person marries in 0.555January, February, or March in year t11, 0otherwise

Married in Fourth Quarter Dummy variable equal to 1 if person marries in 0.445October, November, or December in year t, 0otherwise

Change in Federal Income (Federal income tax due if couple files as married 182.74Tax Burden upon Marriage persons)–(Combined federal income tax due if (681.45)–Couple Approach they file as two single persons)

Change in Federal Income (Federal income tax due on respondents’ income 15.45Tax Burden upon Marriage if he /she files as a married person) – (Federal (1377.07)–Individual Approach income tax due if he /she files as a single person)

Change in Marginal Tax (Top marginal tax rate on couple’s combined 3.37Rate upon Marriage income if they file as married persons)–(Top (8.01)–Couple Approach marginal tax rate on his /her income if he /she files

as a single person)

Change in Marginal Tax (Top marginal tax rate on respondent’s income if 2.03Rate upon Marriage he /she files as a married person)–(Top (8.59)–Individual Approach marginal tax rate on his /her income if he /she files

as a single person)

Marital Income Combined after-tax income of respondent and spouse 16893.38(future spouse in the case of first quarter (13682.45)marriages)

Younger than 21 Dummy variable equal to 1 if respondent is aged 0.13120 or less, 0 otherwise

Older than 40 Dummy variable equal to 1 if respondent is aged 0.09041 or more, 0 otherwise

Male Dummy variable equal to 1 if the respondent is a 0.477male, 0 otherwise

Pregnant Dummy variable equal to 1 if the respondent 0.073reports that he or she has a baby born within firstsix months of following year, 0 otherwise

New Baby Dummy variable equal to 1 if the respondent 0.032reports that he or she had a baby that year, 0otherwise

Current Year Last two digits of year of observation 76.78


measures how much he or she would pay in taxes if he or she remained unmarried.In the absence of other information, we assume in these calculations that the

11individual uses the standard deduction and takes the personal exemption.Next, we calculate the joint income of the individual and his or her spouse by

combining their individual incomes in the year before marriage. The joint taxliability on the combined income is then determined from the relevant tax code inthat year. Again, we assume that the standard deduction and the exemption fortaxpayer and spouse are taken; in the appropriate years, we assume that eligiblecouples take the two-earner deduction. We also assume that the couple files jointly;

12in most cases there is no benefit to filing separately as married persons. Thisgives us a measure of the total tax obligation of the couple upon marriage if they

13decide to marry in that year.Finally, the appropriate marital tax burden must be allocated to the individual in

our sample. The marriage penalty is often discussed as a well-defined entity, but infact there is no one single way to calculate the difference in tax burden generatedby marriage. Feenberg and Rosen (1995) point out that there a number of‘‘reasonable algorithms’’ by which the pre- and post-marriage tax burden could becalculated.

We use two allocation methods. In the first approach (the ‘‘couple approach’’),we determine the total change in taxes for the couple that results from marriage.To do this, we total the single tax burdens of the two partners, and then subtractthis total from the tax burden of the two as a married couple. The result is thechange in total tax burden to the couple that results from marriage. If the result isnegative, marriage is subsidized by the federal tax code, while if positive marriageresults in an increased tax burden.

Note, however, that this method tells us nothing about distributional effectsbetween partners. It is possible that a person pays a larger share of his or herincome to taxes when married than single, and yet overall the couple pays less. Weexamine the impact of this phenomenon in our second calculation of the marriagepenalty.

In the second approach (the ‘‘individual approach’’), we determine the impactof marriage on the income tax liability of the individual; that is, we look at theeffect of taxes on the individual’s income (as opposed to the combined incomes of

11The PSID only recently began asking whether taxpayers itemized deductions on their federal taxreturn, and for almost all of the years in our sample we do not know whether the people are itemizers.We therefore assume that everyone takes the standard deduction. This is the same approach used byRosen (1987) and Feenberg and Rosen (1995) in those instances in which they do not have informationon itemized deductions.

12One common misconception is that married individuals have the option of filing as single persons.It is true that married people can file separate tax returns. However, this rate structure differs from thatfor individuals who are single filers.

13If the couple marries in the last quarter of the year, obviously a portion of their annual reportedincome for that year was earned while married.


both spouses) in the event of a marriage. To calculate this measure, we determineif the respondent partner in our sample is the higher earner in the couple, and, ifso, we classify this individual as the ‘‘primary earner’’. We then assume that withmarriage the primary earner’s income is taxed first, so that his or her income istaxed starting at the lowest end of the progressive federal tax schedule that isapplicable to married persons. If the respondent partner in our sample is the‘‘secondary earner’’ in the couple, we calculate the tax liability with marriage byadding his or her income to the primary earner’s income and taxing it at theresulting higher rates. Unlike the primary earner, the secondary earner’s taxliability is affected both by the income of his or her spouse as well as by maritalstatus. Finally, we subtract the individual’s single tax liability from the in-dividual’s marital tax burden to arrive at the difference in the tax burden broughton by marriage for the individual respondent. Again, if the measure is negativemarriage causes a tax subsidy, while if it is positive marriage causes a tax penalty.

These two approaches give somewhat different estimates of the marriage tax orsubsidy. In fact, there are instances where the couple receives a marriage subsidywhile the individual is penalized, and vice versa. The couple approach is mostsimilar to calculations done by others (Feenberg, 1983; Rosen, 1987; Feenberg andRosen, 1995). As indicated in Table 1, the mean change for the couple is anincrease in the total tax burden of $183 (measured in real 1983–84 dollars), anaverage that masks some substantial variations in the impact of marriage that occuracross different income groups, different relative incomes of the spouses, andacross time. In contrast, if the individual approach to calculating the change in taxburden of marriage is examined, the mean penalty is only $15.

Some examples of the wide range of tax effects generated by marriage areillustrated in Table 2, all measured in real 1983–84 dollars. The calculations infirst column are based on the couple method of computing the marriage tax, whichdetermines changes in the taxation of the couple’s income; the second columngives changes in the individual’s tax burden. It is clear that couples with twoearners incur a much larger tax penalty than do couples with a single earner. Thedifference across income groups depends on whether both partners work. Amongsingle-earner couples, the average subsidy increases with income, while fortwo-earner couples the average penalty rises with income. The overall couplepenalty has increased across time, but the individual penalty has declined, due

14largely to changes in female labor force participation.Of particular interest is the male–female differential. When the individual

changes are calculated, female respondents incur a large marriage penalty andmale respondents incur a large marriage subsidy, a result that arises from the status

14See Alm and Whittington (1996a) for a discussion of the relative importance of changing tax lawversus family structure in cross-year patterns of the average marriage tax, for the period 1967 to 1994.They demonstrate that family characteristics (e.g., the number of earners and children) have contributedmore to changes in the average marriage tax across time than have changes in federal tax statutes.


Table 2Weighted mean changes in federal income tax burden upon marriage for selected groups (All taxcalculations in 1983–84 dollars)

Group Change in Federal Change in FederalIncome Tax Burden, Income Tax Burden,Couple Approach Individual Approach

Couples with a Single Income 2610.71 2391.41Couples with Two Incomes 328.84 118.56Single Earner, Marital Income#$10 000 2465.64 2242.80Two Earners, Marital Income#$10 000 230.68 5.23Single Earner, Marital Income $10 001–$30 000 2998.42 2777.09Two Earners, Marital Income $10 001–$30 000 252.91 238.98Single Earner, Marital Income.$30 000 24165.05 24163.83Two Earners, Marital Income.$30 000 1169.09 212.901968 2221.43 273.711977 33.63 2245.691987 257.71 2570.72Females 189.91 707.00Males 133.93 2715.15

of women as so-called secondary earners in the family because of their lowerearnings. Over 80 percent of the couples in these data have a male primary earner,and about 8 percent have equal earners. When the tax change is calculated for thecouple, there is a much smaller difference between the mean value for female and

15male respondents, and the mean value is positive for both.The two procedures used to calculate the change in total tax burden associated

with marriage are also used to generate two measures of the impact of maritalstatus on the marginal tax rate. Using the couple approach, the change in themarginal tax rate upon marriage equals the marginal tax rate on the last dollar ofcombined income of the married couple less the top marginal tax rate on theindividual’s income as a single filer. Using the individual approach, the change inthe rate again equals the difference between the marginal tax rate of the respondentwhen married versus single, and reflects the designation of the individual as theprimary or the secondary earner in the couple.

Regardless of the measure employed, our hypothesis is that an individual islikely to delay marriage from one tax year to the next in the presence of acurrent-year marriage tax, while the presence of a current-year marriage subsidywill encourage marriage in the current year. The impact of a change in marginaltax rates is ambiguous.

15The couple calculation amounts are not equal for men and women because this sample uses onlyone respondent per couple. These men and women are therefore not married to each other.


3.3. Estimation methods

Recall that we have limited our analysis to individuals who marry in the first orlast quarter of a year, given that the decision has made to marry. The empiricalquestion is then: will an individual delay marriage from one quarter to the next inorder to avoid an additional tax payment in the current quarter? Delaying an eventfor a year or more may be the result of a host of characteristics such as age, schoolstatus, health, gender, parental approval, and the like, in addition to tax liability.However, scheduling a marriage in the last quarter of one year versus the firstquarter of the next year will be largely a function of the characteristics that changeover that short period of time.

The dependent variable (D ) in our estimation is binary, and equals 1 if theit11

couple delays marriage from the fourth quarter of year t to the first quarter of yeart11, and 0 if the couple does not delay marriage (i.e., completes the marriage inyear t). We estimate a logit transformation of a linear probability function, or

P(D )it11]]]]log 5 c 1 dX (10)it[1 2 P(D )]it11

where P(?) is the probability of marriage in the first quarter of period t11, X is ait

vector of explanatory variables that affect the timing decision of individual i, and cand d are parameters. The standard logistic likelihood function

D (12D )it11 it11L 5 P P (1 2 P ) , (11)i i

is maximized for all observations.We include several explanatory variables in X . Our theory of marital timingit

suggests that the change in tax liability for year t and the change in the marginaltax rate for year t affect the timing decision. We expect that individuals whoexperience a marriage penalty will be likely to postpone marriage until the firstquarter of the following year. By doing so, they avoid paying the marriage penaltyfor the current year because they are able to file as single individuals until they areactually married. On the other hand, couples who experience a large marriagesubsidy are less likely to delay marriage because they will want to capture thesubsidy offered in the current year. The marginal tax rate has competing effects,and may therefore increase or decrease the probability of delaying marriage.

We also include several other explanatory variables, even though these variablesmay not change over a short period of time (see Table 1). Because there is arelationship between tax burdens and income, we control for marital income in ourestimation. Like the marginal tax rate, income has competing effects on thebenefits of marriage (Becker, 1973, 1974; Grossbard-Shechtman, 1993), and mayeither speed or delay the union. Age may affect timing. We expect that youngercouples may be encouraged to delay marriage, given the negative consequencesoften associated with early marriage; on the other hand, older couples may be


acutely aware of the limits to reproduction, and thus may be less likely to delaymarriage. The presence of a new baby is likely to encourage current-year marriage,rather than a delay, so that the couple is married in the same calendar year as thechild’s birth. Likewise, a delayed marriage is less likely if the female of the coupleis pregnant. A time trend variable (or current year) is also included.

In order to identify the effect of taxes on marriage as distinct from income, theremust be variation in the tax code so that the marriage penalty is more than anon-linear transformation of income. In fact, there has been substantial change infederal tax policy over the years we explore. For example, the introduction in 1971of a new rate schedule for single persons (Tax Reform Act of 1969) dramaticallychanged the relative tax cost of marriage. The earned income tax credit wasintroduced in 1975, the standard deduction (zero bracket amount) was substantiallyincreased in 1977, the secondary earner deduction was adopted as part of theEconomic Recovery Tax Act of 1981, and the Tax Reform Act of 1986 resulted ina number of major changes in the federal income tax. Rate schedules changed in1971, 1977, 1979, 1982, 1984, 1985, 1986, 1987, 1988, and 1989, sometimes justto keep pace with inflation but often as a fundamental shift in tax liability for agiven income.

It is important to understand further that the marriage penalty changes as a resultof both the absolute level of single and marital income but more importantlybecause of the relative incomes of the husband and wife. The marriage penaltydoes not simply increase with income, as Table 2 clearly demonstrates. In fact, thepenalty generally decreases (or the subsidy increases) with income when there isonly one earner in a household, but the penalty typically increases with incomewhen both partners work. In general, the more similar the incomes of the partners,the greater the penalty, at all income levels.

The marriage penalty is therefore not simply a function of income, but ratherhinges crucially on tax policy and the relationship of male to female income. Bothof these have changed substantially in the past two decades, and so the averagemarriage penalty has also fluctuated significantly over the past twenty-five years(Alm and Whittington, 1996a). We are not, therefore, merely capturing a time trendtoward marriage in a particular quarter.

We can sort out the impact of tax law changes from family structure changes byincluding in some specifications a measure of the average marriage penalty /subsidy for all couples (or individuals) in a given year and, as a separate variable,the difference between that average and the marriage penalty / subsidy experiencedby the couple (or individual). The average penalty will largely capture changes intax law across time (although it will also reflect average income ratios). Thedeviation variable will reflect the impact of the specific income and household

16structure on the marriage penalty.

16We are grateful to an anonymous reviewer for suggesting this approach.


4. Estimation results

In Table 3 we present the maximum likelihood estimation results of logitmodels predicting the probability of delaying marriage until the first quarter of thefollowing year using the couple approach. We report two different specifications.In Model 1 the tax impact is measured by the standard marriage tax /subsidyvariable, or the difference between the combined tax burden of the couple assingles and their tax burden as a married couple. The second specification (Model2) uses two variables to capture the tax impact: the average penalty and the

17deviation from the average, as discussed above.

Table 3The impact of the change in income taxes on marriage timing: maximum likelihood estimates of logit

amodels using couple approach (Chi-square statistic in parentheses)

Independent Variable Model

1 2

*Change in Federal Income Tax Burden upon 0.065 –bMarriage (3.81)

Average Change in Federal Income Tax Burden – 20.039bupon Marriage (0.07)

*Deviation from Average Change in Federal Income – 0.070bTax Burden (4.20)

Change in Marginal Tax Rate upon Marriage 0.003 0.003(1.62) (1.83)

b ** **Marital Income 20.005 20.005(7.11) (7.53)

** **Younger than 21 0.155 0.157(9.74) (9.90)

Older than 40 20.081 20.080(1.48) (1.45)

Current Year 0.002 0.004(0.44) (0.92)

1 1Pregnant 20.105 20.106(2.84) (2.86)

* *New Baby 20.160 0.160(5.07) (5.09)

Chi-Square for Covariates 33.04 33.61(Degrees of Freedom) (8) (9)1 * **: p#.10; : p#.05; : p#.01.a The dependent variable equals 1 if the marriage occurs in the first quarter of the following year, andequals 0 if the marriage occurs in the fourth quarter of the current year. All coefficients are transformedto the partial derivatives, ≠P/≠X. The constant is therefore not presented.b Dollar amounts are measured in thousands of dollars.

17We test for income heteroscedasticity but find no significant evidence of any violation of theassumption of homoscedastic error terms.


The coefficient on the tax burden in Model 1 of Table 3 is positive andstatistically significant, a result consistent with our theoretical conclusion thatcouples will delay marriage if their tax burden increases with marriage. Note,however, that the marginal effect of a change in the income tax burden is notlarge. For example, if the average marriage penalty to a couple doubles, then theprobability of delaying marriage increases by a little over one percent.

In Model 2 of Table 3, the average change in tax burden generated by marriagehas no significant impact on the timing of marriage for the couples. The deviationfrom the average, however, is a significant determinant of marital timing, againdemonstrating that couples with a larger than average penalty will defer marriageinto the next tax year while couples with a larger subsidy are less likely to delaymarriage. Because the size of the deviation for a specific couple is due to theirrelative incomes, this result indicates that the key timing factors are the specificcharacteristics of the couple rather than the average change in the tax treatment ofall married couples. Note that the magnitude of the coefficient on the change in taxliability in Model 1 is similar to that on the tax deviation in Model 2.

The change in the marginal tax rate from marriage does not appear to affect thetiming of marriage in any consistent manner. This result is plausible because themarginal tax rate has competing effects that may offset one another. Maritalincome, however, has a statistically significant negative effect on the probability ofdelaying marriage, so that the higher is marital income the more likely themarriage will occur in the current year rather than being delayed to the next year.This result is consistent with the notion that the higher the current return tomarriage the more likely is marriage to occur now rather than later.

Very young couples are significantly more likely to delay marriage than couplesof ‘average’ marriage age. Couples over the age of 40 are somewhat less likely todelay, although this effect is significant at only the 20 percent level. We find noevidence of any significant time trend impact. As expected, both the presence of anew baby and a pregnancy are significant deterrents to delaying marriage.

Although we believe that only those factors that change over a relatively shortperiod of time are likely to result in a one-quarter delay in marriage, we alsoestimate models containing time invariant (or relatively invariant) explanatoryvariables, such as dummy variables for race, education, and second marriage.Consistent with our framework, we find that these characteristics do not affect thetiming of marriage, even though there is other evidence that they influence theprobability of marriage (Alm and Whittington, 1995, 1996b).

Recall that taxation should have no influence on the timing of marriage within ayear because timing changes within a year have no real tax consequences. We alsoestimate models of the probability of delaying from the first to second, second tothird, and third to fourth quarters within a year. Consistent with our theoretical

18expectations, we find no tax effects that approach statistical significance.

18These and other unreported results are available upon request.


Results from models estimated using the individual approach to calculating thetax effects of marriage are presented in Table 4. Again, we present two differentmodels: the standard penalty / subsidy (Model 1), and the average versus deviationpenalty / subsidy (Model 2).

As in the couple approach, the coefficient on the tax change of marriage inModel 1 is positive and significant, indicating that an individual delays marriagewhen he or she incurs a tax penalty. Again, the tax effect is small. Note that thecoefficient on the tax variable is roughly twice as large in the couple approach ofTable 3 than in the individual approach of Table 4, indicating that a couple whooverall experiences an increase in tax burden, regardless of the individual taxshares, is likely to postpone marriage to avoid the additional tax burden for thecurrent year. With an increase in the couple’s tax burden, there is no way for one

Table 4The impact of the change in income taxes on marriage timing: maximum likelihood estimates of logit

amodels using individual approach (Chi-square statistic in parentheses)

Independent Variable Model

1 2b *Change in Federal Income Tax upon Marriage 0.032 –

(3.93)Average Change in Federal Income Tax Burden – 0.139

bupon Marriage (2.43)1Deviation from Average Change in Federal Income – 0.030

bTax Burden (3.36)Change in Marginal Tax Rate upon Marriage 20.001 20.001

(0.16) (0.25)b 1 1Marital Income 20.003 20.003

(3.58) (3.49)** **Younger than 21 0.156 0.154

(9.71) (9.44)Older than 40 20.084 20.085

(1.60) (1.64)Current Year 0.001 0.0003

(0.04) (0.01)Male 20.034 20.037

(0.74) (0.86)1 1Pregnant 20.107 20.107

(2.96) (2.91)* *New Baby 20.161 20.162

(5.15) (5.19)Chi-Square for Covariates 35.19 36.68(Degrees of Freedom) (9) (10)1 * **: p#.10; : p#.05; : p#.01a The dependent variable equals 1 if the marriage occurs in the first quarter of the following year, andequals 0 if the marriage occurs in the fourth quarter of the current year. All coefficients are transformedto the partial derivatives, ≠P/≠X. The constant is therefore not presented.b Dollar amounts are measured in thousands of dollars.


partner to compensate the other for a penalty, using his or her subsidy. On theother hand, an individual who experiences a penalty may marry someone whoreceives a subsidy, and the subsidized partner can compensate the penalizedpartner for an increased tax liability.

The deviation from the mean tax change in Model 2 of Table 4 is positive andstatistically significant ( p5.07), but, as in Table 3, the average penalty is not asignificant determinant of marital timing. This result again suggests that the impactof family characteristics on the value of the penalty or subsidy is of primaryimportance.

Other results are quite similar to those presented for the couple approach inTable 3. Marital income, younger than 21, pregnant, and new baby are significantdeterminants of marital timing, while the coefficients on the change in themarginal tax rate, older than 40, and the time trend are not significantly differentfrom zero. Also, we control for the gender of the specific respondent in theindividual models of Table 4, but find that there is no significant differencebetween males and females. In various other (unreported) specifications, we testfor gender differences in the slope coefficients, and likewise find no significanteffects of gender.

We have also estimated similar models for the impact of taxes (and othervariables) on the timing of the divorce decision; these results are not reported here.As suggested by the theory of marital timing, our expectation was that thecoefficient on the change in tax burden with divorce would be positive. However,this coefficient estimate is never statistically significant, in any specification.Similarly, the change in marginal tax rates with divorce has no impact on thetiming decision. Inclusion of other explanatory variables that control for gender,race, age, pregnancy, new baby, education, and the like does not affect theseresults. The timing of the individual’s divorce decision does not seem to depend inany systematic way on these variables. Indeed, as suggested by Fig. 1, the seasonalpattern of divorce is much less pronounced than that of marriage.

There are a number of factors that may contribute to these divorce results. Onefactor is the small divorce sample size, much smaller than the marriage sample(945 versus 330 observations). Another factor is the institutional reality thatdivorce, unlike marriage, is subject to the legal schedules and vicissitudes of thecourts, attorneys, and the like, all of which make it difficult for individuals tochoose precisely the timing of their divorce. A third explanation for the lack ofsignificance of the tax variables in the divorce models relates to the tax status ofseparated versus divorced individuals. Individuals who are not yet legally divorcedcan sometimes, for tax purposes, be considered heads of households, so that thefinal divorce decree may not actually change their tax standing; in contrast,marriage unambiguously changes one’s tax status, and the estimation results inTables 3 and 4 clearly indicate that the tax consequences of this change enter themarriage timing decision. Fourth, we have little information about post-divorcehousehold structure, so that precise determination of the marriage penalty isdifficult. Finally, and perhaps most importantly, the psychic costs of remaining


married may well outweigh any consideration of economic factors. In fact, the illfeelings that lead to divorce may well contribute to the efforts of one spouse toharm the other financially via deliberate actions that either delay or expedite thedivorce process, and that do so in ways that make the tax consequences of divorcefelt by the partner larger—and much more negative—than otherwise.

5. Conclusions

Individuals may respond to taxes along a hierarchy of behavioral dimensions,such as real responses, accounting responses, or timing responses. The results inthis paper offer some support for the notion that individuals choose the timing oftheir marital actions based in part on the tax consequences of these decisions. Inparticular, we find that the timing of marriage is related to the tax burden of beingmarried versus being single.

These results indicate that taxes affect the timing of nontraditional, nonmarketactivities like family structure decisions. However, the actual magnitude of thisimpact should not be exaggerated. As one way to illustrate the magnitude, considerthe average response of individuals to the marriage tax. The average marriagepenalty using the couple approach was approximately $300 in 1985. Using thecouple estimation results from Model 1 in Table 3, the income tax therebydecreased the probability of marriage by an average of about 2 percent in 1985;with total marriages in the mid-1980s averaging roughly 2.5 million per year, thissuggests that the income tax alone led to the delay of 50,000 marriages. However,examining the average effect masks the huge range of variation in the marriage taxand subsidy. As another way to illustrate the magnitude of the tax impact, considerseparately those individuals who pay a marriage tax and those who receive amarriage subsidy. Again using the couple estimation results from Model 1 in Table3, the presence of a marriage tax increased the probability of delay for the formergroup by nearly 5 percent, while the existence of a marriage subsidy decreased theprobability of delay for the latter group by 1 percent. The number of marriages inwhich timing is affected in some way by the income tax now approaches 150,000.

The real social significance of these numbers is hard to gauge. Although theyrepresent a not insignificant impact, these individuals do marry, the current-yeartax loss to the federal government is small, and the excess burden of thisbehavioral change also seems likely to be small. Still, these numbers also representa clear, negative impact of taxation. Further, there is emerging evidence that theincome tax affects the marriage (and the divorce) decision itself, not simply thetiming of the decision, with potentially larger and more serious consequences (Almand Whittington, 1995, 1996b; Whittington and Alm, 1997). Finally, these taxeffects on marital decisions need not occur, since it is possible to choose the unitof taxation to make the income tax more, if not perfectly, marriage-neutral. It istoward the goal of marriage-neutral income taxation that current proposals oflegislative reform seem directed.


Acknowledgments

We are grateful to Len Burman, Jonathan Gruber, Suzi Kerr, the participants ofthe Labor Economics Seminar at the University of Maryland—College Park, andtwo anonymous reviewers for their helpful comments. Lien Trieu providedvaluable word processing assistance. Please address all correspondence to JamesAlm, Department of Economics, Campus Box 256, University of Colorado atBoulder, Boulder, CO 80309-0256, USA.

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Income taxes and the timing of marital decisions