Date of Award

Spring 5-15-2022

Author's School

Graduate School of Arts and Sciences

Author's Department

Economics

Degree Name

Doctor of Philosophy (PhD)

Degree Type

Dissertation

Abstract

The decision-making process within the household is a significant component to be taken into consideration for policy design in both developed and developing economies. Therefore, this dissertation focuses on understanding how joint-household behavior and taxation impact the labor market and intergenerational mobility. To this end, Chapters 1 and 2, focus on how joint-household behavior and taxation impact the formal-informal sector composition in Brazil. Meanwhile, Chapter 3 analyses the role of taxation, child expenditures, and family structure on intergenerational mobility of educational outcomes.

Among the most significant challenges of the labor market in developing countries is reducing high informality rates, which range from 40% to 70% of the workforce. Even after government efforts, the high rates persist over time. Studying the household decision-making process regarding labor market choices in these economies is crucial to comprehend how they sort into different labor market sectors. Hence, in Chapter 1, using data from the Brazilian Monthly Employment Survey and the tax reform SuperSimples (2007), I implement a matching difference-in-differences (MDID) to demonstrate that the impact of the policy on the transition of informal workers to the formal sector depends on how families sort into the labor market. A positive and significant policy impact for single and married women is uncovered; however, for married couples, we find heterogeneous policy impacts according to the initial sorting of the household into the labor market sectors. I present evidence of two joint-household behaviors: first, married couples with both employed pre-policy sort into the same sector post-policy; second, married couples pre-policy with only one employed, post-policy sort across sectors.

Given this dependence, a framework is needed to account for the endogenous sorting of the household members into different labor market sectors and the impact on the labor market dynamics. Additionally, a structural policy evaluation approach is needed to provide a full assessment of the effect of SuperSimples at the household level and the aggregate labor market.

For this reason, in Chapter 2, I develop and structurally estimate a household search model with formal and informal sectors in the labor market, allowing for endogenous household sorting, on-the-job search, treatment assignment, and risk aversion. Given the exogenous variation of the policy, I evaluate, quantify, and decompose the causal impact for heterogeneous workers into labor-supply and labor-demand mechanisms. The main findings are: (1) The policy positively impacted the formality rate by 14%, mainly explained by higher job-finding rates, where 44% of the inflows correspond to married women with a formally employed spouse; (2) changes in the conditional wage distributions are the policy's most effective mechanism; (3) welfare gains of 4.2% and improvements in inequality of 4% arise especially for informal men; (4) the policy effect is ambiguous when decomposed by gender and marital status; and (5) younger workers respond the most to policy changes, leading to higher formality rates in the long-run. Thus, these results provide new avenues for policymakers to design cost-effective targeted policies and social programs to improve labor market performance, inequality, welfare, and the aggregate economy.

Furthermore, in Chapter 3, I focus on developed economies such as the United States. Using data from the Panel Study of Income Dynamics (PSID) and the Child Development Supplement (CDS), I investigate the role of taxation, child expenditures, and family structure on intergenerational mobility. First, implementing a linear probability model, I study the correlations between a child's educational outcome and parental joint-education, income, child expenditures, and total taxes. Second, I implement an ordinary least-squares (OLS) regression to study how taxation impacts how families spend on their children. The main findings are: (1) The persistence in educational outcomes is higher for children raised by a married couple than by a single mother; (2) a child with a low-educated parent is expected to be 17 p.p. below the child who has a high-educated parent; (3) educational mobility has improved across generations; (4) higher monetary expenses on the child's education and recreational activities positively contribute to the probability of graduating college; and (5) no significant coefficient was found regarding the impact of total taxes on child expenditures.

Language

English (en)

Chair and Committee

George-Levi Gayle

Committee Members

Limor Golan

Comments

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Economics Commons

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