Taxes, Subsidies, and Gender Gaps in Hours and Wages

Robert Duval-Hernandez, Lei Fang, and Rachel Ngai
Working Paper 2021-17
June 2021

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Abstract: Using micro data from 17 countries in the Organisation for Economic Co-operation and Development, this paper documents a negative cross-country correlation between gender ratios in market hours and wages. We find that market hours by women and the size of the service sector that produces close substitutes to home production are important for the gender differences in market hours across countries. We quantify the role played by taxes and subsidies to family care on the two gender ratios in a multisector model with home production. Higher taxes and lower subsidies reduce the marketization of home production and therefore reduce market hours. The effect is larger for women because of their comparative advantage in producing home services and the corresponding market substitutes. The larger fall in female market hours drives up the female wage relative to the male wage, resulting in higher gender wage ratios.

JEL classification: E24, E62, J22

Key words: marketization, gender hour ratios, gender wage ratios, subsidies on family care, taxes, home production

The authors thank Alessio Moro, Chris Pissarides, Michelle Rendall, and Etienne Wasmer as well as participants at various seminars and conferences. The views in this paper represent those of the authors and are not those of either the Federal Reserve Bank of Atlanta or the Federal Reserve System. They acknowledge financial support from the European Research Council EUROEMP Advanced Grant (\#323940) administered by the University of Cyprus. This paper is a revision of Federal Reserve Bank of Atlanta working paper no. 2017-8.

Please address questions regarding content to Robert Duval Hernandez of the Open University of Cyprus, CIDE (Centro de Investigación y Docencia Económicas), and IZA; Lei Fang of the Federal Reserve Bank of Atlanta; and L. Rachel Ngai (corresponding author) of the London School of Economics, the Center for Economic and Policy Research, and the Centre For Macroeconomics.

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