Abstract

Joint work with Tommaso Giommoni (ETH Zurich) and Enrico Rubolino (University of Lausanne)

The standard model of household behavior predicts that couples cooperate to maximize family income. This paper shows that gender identity norms represent an important friction preventing family income maximization. For identification, we focus on an Italian policy that grants a large tax credit to the main earner in a couple when the second earner reports income below a cutoff. Using new tax returns data, we show large bunching responses at the tax credit cut-off from second earner women, but no response from second earner men. This result suggests that household decisions are not Pareto-efficient when men are the second earner within the couple. Gender differences in bunching mostly emerge after marriage and childbirth, and do not reflect any gender-specific difference in scope for bunching. In support of the view that gender norms drive our results, we find that gender differences in bunching are relatively larger among immigrants coming from more conservative societies, and natives living in more gender-traditional municipalities. Additionally, these results have important implications for gender inequality: we show that the spouse tax credit persistently limits women’s careers and amplifies the gender income gap.