Gender Based Taxation and the Division of Family Chores

with Alberto Alesina and Loukas Karabarbounis*

Since women have a more elastic labour supply than men their labour income should be taxed less. This is a well known implication of the Ramsey principle of optimal taxation that any first year graduate student of public finance would know. We recently brought this idea to the attention of the public debate as a feasible policy proposal rather than an academic curiosum in a series of articles on the Financial Times, Vox, Sole24ore and LaVoce which have received a fair amount of attention.

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. We make a step towards this more comprehensive evaluation in our CEPR DP6591 (NBER WP13638) on “Gender Based Taxation and the Division of Family Chores”.

The source of gender differences in labour supply: It’s the family.

In modern western societies (and not only in those) 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 the intrinsic interest in their specific job. As a result, men are less sensitive to changes in their compensation since what matters for them, relative to women, is also the intrinsic expected pleasure they derive from careers and market activity. Even when a job is just a job and not a career a man would find socially unacceptable to be the one who stays home to be “househusband” and would continue to work even if is the 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, child care and care for the elderly. The family-induced gender difference in access to labour market opportunities is the reason behind the difference in labour supply participations and elasticities of men and women.

If society values the 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.

The long run effects of Gender Based Taxation

GBT 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, GBT can even be welfare improving for both spouses. And in the long run it will induce a less unbalanced 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. [1]

Obviously several issues remain open. Women could have a comparative advantage in home duties, but with the exception of child care when children are very 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 GBT 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 which may or may not be desirable. Third one would need to study carefully the redistributive implication of GBT taxation. However we should remember that redistributive goals can be reached by different level of progressivity of tax schedules.

Gender based taxation and other gender policies

GBT 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 (like child and old care facilities), and parental leave policies. Note that GBT 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.

GBT could easily be superior to these alternative policies: remember where we started: in addition to achieving social and gender based goals, GBT reduces tax distortions! Moreover, GBT should be preferable in light of 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 equalise 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. Moreover, taxing polluting activities is generally considered superior to controlling them with quantitative restriction. It is difficult to think of a case in which GBT should cause larger distortions than the alternative policies, even without considering the efficiency gain deriving from the Ramsey principle, which is a added plus delivered only by GBT.

There is certainly enough here to take Gender based Taxation seriously as an option.


[1] What changes across countries is only the relative fraction of gender differences in home versus market work, with men working more in the market in every country. See Burda M. D. Hammermesh and P. Weil (2006) “Different but Equal: Total Work, Gender and Sociall Norms in the US and EU timer Use” unpublished, presented at the Rodolfo De Benedetti Conference, May 2007.

* a version of this piece appeared previously on VOX (http://www.voxeu.org/)

2 Responses to "Gender Based Taxation and the Division of Family Chores"

  1. Ulrich Fritsche   January 18, 2008 at 6:19 am

    Why not enforce firms to pay equal wage for equal jobs? That might not help with regard to social attitudes (but surely help to change the attitudes). The problem I have with your proposal lies in the fact, that by introducing a tax in the allocation mechanism I always find it difficult not to assume that I introduce inefficiency in another place.

  2. Guest   January 18, 2008 at 8:15 pm

    I would rather leave the state out of my personal arrangements. Period.