Taxes, Subsidies, and Gender Gaps in Hours and Wages

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.