Gender based taxation can improve welfare

Alberto Alesina, Andrea Ichino, Loukas Karabarbounis, Mon, 12/10/2007



According to taxation theory, a government should tax goods and services which have a more elastic supply less. As women’s labour supply is more elastic than men’s, tax rates on labour income should be lower for women than for men. The argument, although well known in recent studies, has not been taken seriously as a policy proposal, despite the fact that other gender based policies are routinely discussed. The authors of CEPR DP6591 analyse the effects of gender based taxation and find that it provides substantial welfare and GDP gains because it minimizes the overall social loss from labour market distortions.

The differences in the labour supply functions of men and women, including their elasticities, depend on the internal organization of the family. The authors explore the case in which males and females are identical in terms of innate abilities, preferences and predispositions, but men have more explicit bargaining power at home, therefore they assume fewer unpleasant and tiring home duties. Hence, they participate more in the labour market, exercise more effort, earn more and engage in careers that offer ‘upside potential’ i.e. higher salaries and promotions. On the contrary, women basically work only for their wage. As a result, men are less sensitive to changes in wages since what matters for them, relative to women, is also the expected pleasure they derive from careers and market activity.

The authors find that to the extent that the division of family chores is unbalanced, gender based taxation reduces tax distortions, improves welfare and increases GDP and total employment. It generates a more equitable allocation of house versus market work, changing spouses’ implicit bargaining power and reallocating the last hour spent with children from the mother to the father, which is welfare-improving for the family as a whole given decreasing returns to scale. As long as this reallocation does not produce complete equity between male and female and therefore the supply elasticities remain different, gender based taxation is optimal.

DP6591 Gender Based Taxation and the Division of Family Chores

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Topics:  Labour markets

Tags:  economics of gender, elasticity of labour supply, family economics, optimal taxation


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