Taxes and transfers: their effects on the decision to end a marriage

The transfer system typically has large marriage disincentives, while the income tax system is likely to subsidize marriage for many low-income families. In other words, the tax system may offset an increase in transfer benefits associated with marital separation. The interaction of the transfer system with the income tax system has largely been overlooked. The income tax system has become more relevant for low-income families with the recent expansion of the Earned Income Tax Credit, which filers may be eligible for even if their tax liability is zero. This paper uses family level measures of the change in transfer benefits and tax liability associated with a change in family structure to consider the effect of these financial incentives on separation decisions. (C) 1999 Elsevier Science S.A. All rights reserved.