Women have a more elastic labour supply than men. By the Ramsey principle of optimal taxation (that taxes should be lightest on goods that are more price-elastic) familiar to any first-year graduate student of public finance, women’s labour income should be taxed less.
But the issue is far from settled. In particular, the critical question is why women have a more elastic labour supply, how would that change with gender-based taxation and what would be its effect on the organization of the family.
In modern Western societies (and elsewhere), differences in labour supply behaviour of men and women are not rooted only in the functioning of markets and firms but originate within the family. For historical and cultural reasons, the relative bargaining power of spouses is still such that men can get away with a lower share of unpleasant home duties. Hence, they can participate more in the market, exercise more effort and earn more than their spouses. The avoidance of family chores allows men to engage in careers that offer “upside potential” in terms of wages and promotions. For women, it is the opposite: The division of duties at home forces them to work more for the wage, even if low, than for their intrinsic interest in the specific job. As a result, men are less sensitive to changes in their compensation since they derive more intrinsic expected pleasure from careers and market activity relative to women. Even when a job is just a job and not a career, a man may find it socially unacceptable to stay home as a “househusband” and continue to work even if his salary is lowered, unlike a women who may choose to abandon the labour force if salaries are not high enough to compensate for, say, the cost of household help, childcare and care for the elderly. This family-induced gender difference in access to labour market opportunities is the reason behind the difference in labour supply participation rates and elasticities of men and women.
If society values labour market participation and welfare of women as much as that of men, then the current arrangement can change only if the allocation of home duties becomes more balanced.
Gender-based taxation induces a more balanced allocation of home duties because it increases the implicit bargaining power of women within the marriage by improving their outside option. Despite the change in bargaining power, if family members share enough of their market earnings, gender-based taxation could even be welfare-improving for both spouses. And in the long run it will induce a more balanced participation of men and women in the market, both in term, of levels and elasticities. Currently, women and men work exactly the same amount, but women more at home and men more in the market in all countries for which data are available.
Several issues remain open. Women could have a comparative advantage in home duties, but with the exception of childcare when children are young, it is unclear in what sense women should be better than men at washing dishes except for ingrained cultural values. We are not psychologists, but we postulate that absent fathers and overbearing mothers may not be the optimal arrangement for children! A second issue is whether to apply gender-based taxation only to married women or to singles as well. The first approach is more consistent with the theory, but it would affect incentives to marry and divorce in ways that may or may not be desirable. Third, one would need to study carefully the redistributive implication of gender-based taxation. However, we should remember that redistributive goals can be reached by different level of progressivity of tax schedules.
Gender-based taxation is not the only gender policy that can achieve a more balanced allocation of home duties. But it has been surprisingly neglected as one of the possible options on the table together with more “traditional” (but not less “distortionary”) candidates like affirmative action, hiring and promotion quotas, imposition of?equal?pre- tax salaries by gender, publicly supported family services (such as facilities for children and the elderly), and parental leave policies. Note that gender-based taxation would really go to the root of the problem by inducing a more equitable allocation of household duties between husband and wife. Subsidized services to families would not induce any cultural change in that direction, but simply help women performing certain tasks, which would still remain a “woman’s job”, while men would still get away without involvement in home duties.
Gender-based taxation could easily be superior to these alternative policies: In addition to achieving social and gender-based goals, gender-based taxation reduces tax distortions! Moreover, it accords with the basic economic principle that, if some imperfection needs to be corrected, society should prefer to correct “prices” (such as the tax rate) in order to induce agents to internalize externalities, rather than interfere with “quantities” (such as affirmative action or quotas), which would prevent the possibility to equalize marginal costs and benefits. By the same token, for instance, in international trade a sort of “folk theorem” states that tariffs are superior to import quotas as a trade policy. Taxing polluting activities is generally considered superior to controlling them with quantitative restriction. It is difficult to think of a case in which gender-based taxation should cause larger distortions than the alternative policies, even without considering the efficiency gains derived from the Ramsey principle, a benefit exclusive to our tax proposal. On these grounds, we argue that there are good reasons to seriously consider gender-based taxation.
Alberto Alesina and Loukas Karabarounis are at Harvard University. Andrea Ichino is with the University of Bologna. This article has been republished with permission from VoxEU.org. Comments are welcome at firstname.lastname@example.org