The Married Widow: Marriage Penalties Matter!

Marriage penalties are a controversial feature of many government policies. Empirical evidence of their behavioral effects is quite mixed. This is surprising because economic theory predicts that they should have an impact on the headship decision. We investigate the removal of marriage penalties from the surviving spouse pensions of the Canadian public pension system in the 1980s. These reforms provide a simple and transparent source of identification. Our results indicate that marriage penalties can have large and persistent effects on marriage decisions. We also present evidence suggesting that it is individuals with characteristics correlated with greater wealth who respond to the penalties.