Presentation by Michał Myck at Development Day 2018 – Gender Equality and Economic Development: From Research to Action. This year conference was focused on existing constraints and also highlighted initiatives that could help to create an equal society. More about the conference and research in transition economics can be found on SITE’s website: https://www.hhs.se/site

1. A gender perspective on tax and benefit policy
Michał Myck
Centre for Economic Analysis
SITE Development Day
Stockholm, 01/06/2018

2. Introduction:
• Objectives of tax and benefit policy:
• raise revenue for government (mainly through a mix of taxes and duties);
• redistribute the resources to different groups of the population (in-kind and/or in-cash);
Þ both reflect government decisions in reaction to (some form) of social preferences;
Þ both should consider efficiency and equity issues.
• Considered broadly tax and benefit policy covers the majority of government
activity.
• Focus on key issues related to direct taxation and social transfers:
• present findings from the literature in the context of economic theory;
• point aspects of tax and benefit policy which are most important from the gender
perspective.
Tax and benefit policy and gender equality

3. • Directly discriminatory tax and benefit policies – openly treating men and women
differently – currently hard to find in developed countries.
• Why tax and benefit policy may affect men and women differentially?
• unequal treatment on the labour market (gender pay gap, work conditions, etc.);
• unequal expectations/social norms (child, family care duties, approach to career, etc.);
• constraints on the labour market (e.g. childcare costs);
• differential preferences (with regard to work, income, savings, etc.).
• In the short run tax and benefit policy is unlikely to substantially change this
background
Þ against such background: how can tax and benefit policy help to level the playing field?
Tax and benefit policy and gender equality

4. • Taking a broader, normative, perspective – what do we WANT fiscal policy to
achieve from the point of view of gender equality?
Þ e.g. with respect to employment, should system encourage
• all to work FT?
• all to work PT?
• all men to work FT and women not?
• all women to work FT and men not?
Þ e.g. with respect to consumption, should fiscal system:
• affect the within-household distribution
of resources between men and women?
• be used to channel expenditure in
a specific direction?
• Tax-benefit system DOES affect behaviour: whether we want or not we are in the
world of “libertarian paternalism” (Thaler and Sustain, 2003).
Þ so need to understand HOW the system affects behaviour.
Tax and benefit policy and gender equality

5. Fiscal policy in the context of “standard” economic theory:
• The simplest model of optimisation with regard to tax and benefit policy
• One period, single person household, optimisation over consumption and leisure:
max. U(#, %)
w.r.t.: % = ( [* + (, − #) ∗ /]
• l - leisure
• c – consumption
• w – gross wage of the individual
• y – non-labour income (e.g. capital)
• T – total available time
• ( – is the tax and benefit function which determines the level of disposable income
Þ Individuals choose the best combination of consumption and leisure depending on
their preferences.
Tax and benefit policy and gender equality

6. Fiscal policy in the context of “standard” economic theory:
• The simplest model of optimisation with regard to tax and benefit policy
• One period, couple household – w and m, optimisation over consumption and leisure:
• The “unitary” model:
max. !(#$, #&, ')
Þ Couples maximise a joint utility function and choose the best combination of:
Þ her and his leisure and total household consumption;
Þ depending on household preferences.
• The “collective” model:
max. !) #$, #&, ') where i = w, m
Þ Individuals within couples maximise individual utility functions to choose the best combination of own
consumption and own leisure taking into account:
Þ own individual preferences;
Þ wellbeing of the other partner;
Þ relative bargaining power between partners.
Tax and benefit policy and gender equality

7. Fiscal policy and empirical findings against the background of theory:
• All “standard” models assume that income is “fungible” - the source of income
does not matter for how it is spent.
Þ empirical studies and experiments show that this may not be the case:
• Beatty, et al. (2014): calling a cash transfer “Winter Fuel Payment” implies people have
a much higher propensity to spend it on heating (47% vs. 3%);
• Raschke (2016): increases in German Kindergeld (child benefit) result in increases in
food expenditures;
• Abeler & Marklein (2017): labelling money differently affects spending in experimental
setting.
Tax and benefit policy and gender equality

8. Fiscal policy and empirical findings against the background of theory:
• The “unitary” model of couples’ behaviour implies income “pooling” within
households - who gets the money does not matter for how it is spent:
Þ many empirical studies show that this may not be the case:
• Lundberg et al. (1997): a shift in the payment of the Child Benefit from men to women
implied higher spending on child and female clothing;
• Duflo (2000): increases in old-age pensions in South Africa had positive effects on small
co-resident children only if the pension recipient was a woman;
• Phipps & Burton (1998): changes in male and female incomes do not result in the same
influence on household consumption (especially with regard to such items as childcare).
• This suggests that:
Þ who receives the money matters;
Þ collective model is a better reflection of reality;
Þ bargaining within households matters for the final outcomes.
Tax and benefit policy and gender equality

9. Fiscal policy and empirical findings against the background of theory:
Since with (nearly) every policy we affect outcomes, HOW do we want to affect them?
• Taxes, benefits and the equity-efficiency trade-off:
• Lone parents, e.g.: Bingley and Walker (1997) Creedy and Kalb (2005):
Þhigher out of work benefits will (generally) limit employment;
Þin-work benefits increase employment.
• Couples, e.g.: Aaberge, et al. (1999), Blundell, et al. (2000), Haan and Myck (2007),
Haan and Wrohlich (2011), Immervoll, et al. (2011), Keane and Moffitt (1998)
Þhigher out of work benefits: more no-earner couples;
Þjoint taxation, low taxation of high incomes, universal benefits,
in-work credits: more single earner couples;
Þtwo-earner conditionality, e.g. childcare credits:
more two-earner couples.
Tax and benefit policy and gender equality

10. Fiscal policy and empirical findings against the background of theory:
So how can things be changed?
Þ To improve the range of available choices, first of all: limit constraints.
• Employment:
• Fixed costs of work such as costs of commuting, equipment, and especially childcare.
Þ provision of public childcare or childcare credits/benefits can be effective in increasing
employment among parents, and especially mothers (e.g. Powell, 2002; Wrohlich,
2011);
Þ increasingly important challenge of old-age care and the need for long-term care
arrangements (e.g. Naldini et al., 2016).
Tax and benefit policy and gender equality

11. Fiscal policy and empirical findings against the background of theory:
So how can things be changed?
Þ To balance out inequality through individual choices: change incentives.
• greater role of individual (vs. family) tax and benefit instruments:
• individual taxation (Haan, 2010);
• individual level employment tax credits (Bargain and Orsini, 2006);
• introduction of instruments to encourage the “two earner” model:
• childcare credit;
• means-tested benefit rules (Kurowska et al. 2017);
• new ideas, such as “family working time” model (Müller et al. 2018)
• both parents encouraged to work less than full time.
Tax and benefit policy and gender equality

12. Summary and conclusions:
Tax and benefit tools to promote gender equality:
• Tax and benefit policy operates against an unequal background
Þ it will be more neutral the more equal the background becomes.
• Overall public policy should thus strive to make the background more equal.
• Taxes and benefits can make things more equal against the unequal background:
• limitation of constraints (child and long-term care) to extend the choice set;
• changes in the within-household bargaining power (e.g. transfer allocation);
• financial incentives and implications for choices:
Þindividual against family level instruments;
Þspecific incentives for the two-earner model;
Þspecific incentives for jointly reduced labour market involvement.
Tax and benefit policy and gender equality

13. Summary and conclusions:
Tax and benefit tools to promote gender equality:
• In designing policies we need to bear in mind a broad range of outcomes:
• income-support policies will reduce poverty;
• tax reductions may increase employment of singles and first earners;
• greater within-household bargaining may affect consumption choices;
Þ however all these policies would limit employment – in particular – of secondary
earners;
Þ so: “Apply with caution” (Haan and Myck, 2007).
• There is evidence that behavioural changes in response to policies have broader
consequences:
• parental leave reforms and attitudes among grandparents (Unterhofer and Wrohlich,
2017).
• Thus policies can directly affect outcomes and indirectly change the background
against which they operate.
Tax and benefit policy and gender equality