Should Women Pay Less Tax?

Economists are always thinking, and nothing gets those brains churning like tax incentives.* Alesina and Ichino recently published an article in the Financial Times arguing that the income tax rate for women should be lower. Download their paper (and brace yourself for algebra) here. Women, they say, have a more elastic labour supply, meaning that they are more responsive to wage changes than men.

The writers suggest the policy would further social goals by increasing participation by women in the workforce (as staying home with children would be more costly) while being revenue neutral. And then a classic: “A lower tax on women would lower their pretax wage and increase their after-tax wage, making it relatively cheap for an employer to hire women. Discrimination would then become more costly”. In other words, pay women less so their after-tax wage is equal or higher to mens’, or workplace discrimination against women can be lessened by creating incentives to discriminate against women. A contradiction in terms if I’ve ever seen one.

Further, the overall notion that women have a more elastic labour supply is problematic as it disregards class. How many poor women, a group that is disproportionately working, can increase labour hours in response to higher wages? The authors also believe women’s new found higher incomes will allow their families to purchase child care at market prices, which makes me wonder if the authors know how much unsubsidized day care costs. Poor to middle class families struggle to fund childcare, and it’s not a matter of an extra couple hundred bucks a month.

Contrary to what Alesina and Ichino say, this isn’t a policy where mainstream economists and “social activists” can agree on. Cute tax schemes won’t give women and their families more choices and make them better off. We can tackle this goal directly by, for example, increasing minimum wages (as women are more likely to be earning them) to living wage levels and funding a national childcare program.

* The writer is a self-hating economist.

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