The rise in female employment and the role of tax incentives. An empirical analysis of the Swedish individual tax reform of 1971

Sweden reached the 2009 OECD average level of female labor force participation already in 1974. Before 1971 spouses were taxed jointly. This meant that the wife’s financial gain of working was a function of the husband’s income. The higher income of the husband, the lower was the wife’s work incentive ceteris paribus. After the reform, the link between the husband’s income and the wife’s participation tax rate was, in principle, abolished. This paper exploits a rich longitudinal register data source and the large variation provided by the individual tax reform to analyze the evolution of female employment in Sweden in the years surrounding the 1971 reform. I provide clear evidence that employment grew considerably more among women married to high-income earners in the years following the announcement of the reform, especially among households with kids. Estimated participation elasticities are in the range 0.5–1 for the total sample.