Labor Supply of Married Women, Kink-points on Tax Schedule and Social Security Premium Notch: Evidence from municipality tax records in Japan

This paper explores labor supply of married women using administrative tax record data provided by municipality governments. First, we confirm bunching on the distribution of annual income for married women, at 1.03 million yen and 1.3 million yen. The changes in the spousal deduction in 2018 induced married women who used to adjust their annual income below 1.03 million yen to earn more than the threshold, but the analysis based on the husband's income tax rate was not very robust. We also show that women with lower pre-marriage/pre-birth income tended to reduce their annual income to the dependent range after marriage and childbirth. After childbirth, women's labor supply tends to increase as their children grow up, but the bunching at 1.03 million yen emerges when the children enter kindergarten. Furthermore, two thirds of those who worked within the dependent coverage range are still within the coverage range after five years, suggesting a polarization between those who continue to work full-time after marriage and childbirth and those who leave the workforce after marriage and childbirth and remain either non-working or working part-time within the dependent coverage range.