The Y chromosome tax

Alberto Alesina and Andrea Ichino have a simple proposal: men and women should face different tax rates.

Here is a policy proposal that should make the two camps agree: reduce income taxes on women and increase, by less, income taxes on men in a way that holds total tax revenue constant. This policy would simultaneously reduce overall tax distortions and increase women’s participation in the labour force, thus achieving the goals of quotas and affirmative action but in a more efficient way. While quotas impose quantitative constraints that prevent agents from equalizing costs and benefits at the margin, gender-based taxation changes relative prices but lets agents free to optimize at the margin. For those who believe that women should not face discrimination gender-based taxation should be attractive; it is “fair” to compensate women for the fact they bear the brunt of maternity and early child care costs and this harms their career prospects. Gender based taxation offers a form of compensation that helps redress these inequalities in a less distortionary, more transparent and simpler way that affirmative action quotas.

I find it hard to argue with this one on economic grounds. As they point out, it’s a straightforward application of the Ramsey Rule – goods with more elastic supply should be taxed at a lower rate. “Every study we know in many different countries finds that the elasticity of women’s labour supply is much higher than that of men. In fact the latter is often found to be close to zero, while that of women is often close to 1.”

Now, who’s going to be the first politician to propose it?

(HT: Jeremy Lawson, who drew my attention to the VoxEU blog, now added to the blogroll)

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23 Responses to The Y chromosome tax

  1. ChrisPer says:

    Of course a family-values proponent, like, errrr… could raise taxes on women with sub-teen children to encourage better family life…

  2. backroom girl says:

    My problem with a proposal like this is that it presumes that the current division of labour is inevitable (perhaps even preferred?) and that all women suffer some deficiency which should be compensated as a result. Any proposal that treats all men or all women as an undifferentiated class is sexist and would be unlikely ever to fly politically (I hope).

    While most women still bear children, an increasing proportion do not and many men are also taking on an increasing role in child rearing. How would gender-based tax rates be fair to women who have no children, or to men who end up rearing children, either by design or default?

    I have less problem with an argument that parents should pay lower taxes than non-parents (most countries do this one way or the other, though not always explicitly through the tax system), but treating people differently according to gender is not the way to go, in my view. I’d equally reject ChrisPer’s (hopefully tongue-in-cheek) suggestion on the same basis.

  3. Jerome says:

    This kind of technocratic reasoning is what is giving economics a bad name. How absurd to want to counter some private sector discrimination by some unrelated or only loosely related form of reverse discrimination. Those women who are the least affected by discrimination or by disadvatnages in the worklife stemming from having or being able to have children are exactly the ones who would benefit the most from this tax scheme. Those women who have made a good career, earn good salaries and do not have children have the best time with this proposal. Woman with interrupted, marginal carreers might benefit a bit, will benefit a bit, if they manage to get a job and fill it while caring for their children at the side. If they don’t manage to do this, they don’t benefit. No wonder, no politician in his or her right mind has ever or will ever suggest such a scheme.
    Affirmative action on the other hand addresses the problem directly. It does not help womaen who do not need help in overcoming gender specific hurdles to a successful career. Allowing women to sue the jingjang out of emplyers who, by design or neglect, reserve the vast majority of manegerial positions for men, will do a lot more for women’s career opportunities than tampering with the tax system in a sexist and discriminatory way.

  4. reason says:

    Be careful with taxes and incentives to distinguish between average and marginal tax rates. There may be a politically feasible way to use this to advantage (for instance by adjustment in minimum taxable income).

  5. Russell says:

    “it is “fair” to compensate women for the fact they bear the brunt of maternity and early child care costs and this harms their career prospects.”

    Why doesn’t ‘fair’ include possible (non-monetary) benefits of having time out of the workforce with your children?

    “emplyers who, by design or neglect, reserve the vast majority of managerial positions for men” – are there many who do that? or is it just that men have spent more time in the workforce, steadily grooming themselves for the promotions: their experience gives them a better looking CV.

  6. derrida derider says:

    Well I’m sure Patricia Apps will love the idea.

    Jerome this argument isn’t about discrimination, which is irrelevant to the argument. Its about different measured preferences for work of men and women.

    Equity and administrative arguments aside I think things like labour supply elasticities are not set in stone over the long term; societies change. There have been a couple of NBER papers in recent years claiming that the gap between male and female elasticities has been closing in the US over the last two decades. I’d suspect that in places like Sweden they’d be even closer.

  7. It is worth noting that the idea is not just about reducing the excess burden of taxation. The abstract mentions the concept of fairness as well. To some extent, I suspect that husbands already compensate their wives for the impact that having children will have on their careers. However, a move to increase the tax on men and reduce on women will certainly harm single men who do not have children (such as myself) and bewnefit single women who do not have children. I suspect that labour supply elasticities between these two groups do not differ very much. If people want to pusue Ramsey taxation, then the issue of choosing characteristics on which to base the resulting tax discrimination will inevitably arise. I suspect we can do a lot better than choosing something as blunt as male versus female.

    As a slightly commical aside, I wonder if such a move would alter the demand for gender reassignment surgery? If so, then the resulting increase in the deadweight loss ion the genbder reassignment market would need to weighed against the reduction in deadweight losses from the existing tax system. For men on the margin when it comes to this decision, the proposed change in the tax system would presumably induce them to undertake the surgery. For women on the margin (and I believe that this operation is much more difficult), it would presumably deter them from the surgery. Of course, there may not be very many people on the margin when it comes to such choices. As such, the deadweight losses in the gender reassignment market that would be induced by the proposed tax change might be minimal.

  8. christine says:

    Russell, interesting that even where parental leave is commonly available, men use it less than women – so obviously men (on average!) don’t see there as being many “(non-monetary) benefits of having time out of the workforce with your children”. Wonder why?

    I’m with BG/Damien/Jerome on this one (though I think not on the comical aside, sorry Damien) – if it’s having kids that causes the ‘problems’ then base taxation on having children. Might in particular want to make sure any child benefits paid out are not too severely income tested?

    In any case, there really aren’t that many affirmative action quotas out there these days, I think, so what’s the point of suggesting a potentially less distortionary alternative to something that largely doesn’t exist?

    I thought their argument on higher distributional hazard was slightly better – a similar argument is used for farm and other highly variable incomes. Again, though, this would depend on having children, not on being female.

    The question of whether average or marginal tax rates is relevant is quite interesting here – for women with kids who are thinking of participating versus not participating at all, it’s likely average tax rates that matter, not marginals, particularly due to daycare arrangements.

  9. backroom girl says:

    DD said – “Its about different measured preferences for work of men and women.”

    While preferences for work differ between men and women on average, there are women with a low elasticity of labour supply and men with a high elasticity. It is the fact that people pay taxes as individuals, not as a gender class, that makes this proposal silly. It also misses the point that the purpose of taxation is to raise revenue for governments to spend (supposedly according to some notion of capacity to pay), rather than to encourage or discourage labour force participation per se.

    However, you could see progressive taxation as doing something similar to this proposal, but in a non-gender-specific way. People with a lower propensity to work, who therefore earn less, pay lower margina and average taxes.

    Of course, EMTRs are a different story altogether, but even harder to tackle in a systemic way, since they vary even more between individuals.

    But all that aside, I would be inclined to reject any policy based on gender out of hand, since gender-based treatment is antithetical to my view of what feminism is all about. I particularly object to men proposing special deals for women to compensate them for real or imagined disabilities, as if they are not capable of looking out for themselves.

  10. Sacha says:

    What about people whose gender is unclear?

  11. backroom girl says:

    Good question Sacha – I guess they’ll just have to decide one way or the other, or perhaps we will have a Gender Inspector of Taxation (GIT for short) 🙂

  12. taust says:

    would similar tax discimination also compensate males for their higher death rate at all ages than women (amd consequent shorter life span)?

  13. Russell says:

    “Russell, interesting that even where parental leave is commonly available, men use it less than women – so obviously men (on average!) don’t see there as being many “(non-monetary) benefits of having time out of the workforce with your children”. Wonder why?”

    Christine, the fact that they haven’t taken it doesn’t mean that they wouldn’t like to take it. My guess is that their wives/partners want to stay home with the babies and that the babies are more attached, through breastfeeding etc to their mothers, so the mothers take the parental leave. Also there’s the force of tradition of course: the man will be the breadwinner.

    The assumption in the proposal is that it’s a good thing to “increase women’s participation in the labour force”. I’m not sure that it’s that simple.

  14. derrida derider says:

    Oh I think it a silly idea too, backroom girl. I wasn’t supporting it, just pointing out that the idea’s motivation was not quite what Jerome assumed.

    But let’s not mix the equity, efficiency and political arguments up here. On the efficiency arguments, the fact that some men have a high elasticty and some women have a low elasticity is neither here nor there. It’s enough for the average elasticities of the two groups to differ for us to get an efficiency gain out of taxing them differently.

  15. backroom girl says:

    DD – we (I assume you mean society as a whole) might get an efficiency gain, but my point is that it would make little sense to the individuals who pay the taxes, and as others have pointed out the ones who would benefit the most from it would be women who already work and earn a lot (the good old deadweight cost). On the other hand, I suppose it might induce that group to work and earn less, which some people might think a good thing 🙂

    And while I agree it is important not to mix up equity, efficiency and political arguments (many of which IMO come down to perceptions of equity anyway), I think that any policy proposal based solely on economic efficiency considerations is almost bound to fail. In any case, the context of this discussion was, in Andrew’s words – “who’s going to be the first politician to propose it?”

  16. In any event, it seems silly to think that the only options are switch to the gender differentiated system or stay with the current system. As I tried to indicate in my earlier comment on this thread, if we want to introduce a Ramsey tax system, there are probably far better characteristics to use for differentiation than gender.

  17. As Christine noted, one such characteristic might be the presence of children. As I noted in my first comment on this thread, I suspect that single people without children probably have fairly similar labour supply elasticities. As such, under a Ramsey tax system, they should face similar tax rates.

  18. Karin says:

    Christine says “if it’s having kids that causes the ‘problems’ then base taxation on having children. Might in particular want to make sure any child benefits paid out are not too severely income tested?” I would argue that the social security and taxation systems already have a pro-natal bent (what with child allowances and baby bonuses) and that adjusting tax rates to further accommodate people who choose to parents could alienate and punish those who don’t. For example, I’ve made a very, very conscious decision not to have kids – because I care about the environment (what could be more damaging to the planet than making more people, with the associated consumption, pollution and waste?) and because bringing more people into a war-torn and value-challenged world seems like a dumb idea. Sure, having children is an expensive and career-limiting activity. But it is a choice like any other, and why should we judge it to be a better choice than, say, refusing to over-populate the planet?

  19. Karin, he question of whether you want to bring children into the world is a personal one. However, if your main reason for not having children is concern for overpopulation, then you might want to rethink your decision. The impact on the environment of your unilateral decision not to have children is almost certainly negligible. A single family, even if it is a large one, would form a negligible part of the population of most cities, let alone an entire country or the world.

    The issue that Christine was addressing does not relate to the appropriateness of personal choices about children. It relates to the question of labour supply elasticities for various groups in the economy. If the government’s sole objective is to minimise the resource misallocation that is generated by the tax system subject to it raising some specified amount of revenue, then tax rates may vary according to demand and supply elasticities for various commodities (including both goods and services). This is known as Ramsey taxation because the principle was first suggested by Frank Ramsey, an English mathematician and economist, in the following paper:

    Ramsey, FP (1927), “A contribution to the theory of taxation”, The Economic Journal Vol 37 Num 145, March, pp. 47-61.

  20. Karin says:

    Damien – the decision not to procreate is not one to be taken lightly, or at whim, and I have no intention of reconsidering. I can’t argue with your economic reasoning but I am puzzled by your maths. It is all very well to suggest that each additional child, or family, would have a “negligible” impact on the world, but population tends to grow exponentially – if I had offspring, they would have offspring, and so on. And in this materialistic world we live in, each generation seems to consume, and pollute, more. I may be a lone voice in the (rapidly vanishing) wilderness, but I stand by my decision not to bring more people into the world. Quite simply, if less people = less pollution, I am happy to be part of the solution rather than part of the problem.

  21. Damien Eldridge says:

    Karin, people don’t live forever. As such, it is not automatically the case that the population will grow exponentially. Indeed, one of the concerns that is sometimes heard in developed countries such as Australia is that the population might shrink due to low birth rates unless immigration exceeds emmigration.

  22. Damien Eldridge says:

    Karin, to elaborate a little on my previous comment, clearly declining birth rates are due to decisions by parents to have smaller families. Some people choose not to have children at all. Some people may not have the opportunity to have children. I was not claiming that this was an illegitimate choice. Indeed, at present I do not have any children. However, I do not think that concern for the environmental impacts of children should be a major factor in a person’s decision to have children for the reasons outlined in my first comment on this thread.

  23. Karin says:

    Ah well, there I guess we’ll have to agree to disagree 😉

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