25. Tax systems and gender
This chapter considers the relationship between gender equity and tax and transfer systems. It first explores why it is important to consider gender equity in taxation: tax policy can be an effective tool contributing to gender fairness and governments’ efforts to reduce gender inequalities. Secondly, the chapter examines the direct and indirect impacts tax policy choices may have on gender outcomes, finding that even gender-neutral tax systems can have adverse impacts on gender through their interactions with broader inequalities in societies. The chapter also analyses the impacts labour incentives may have on gender outcomes, showing that the design of income taxes can influence the incentives for workers to enter the labour market as well as the nature of their participation. Finally, the chapter discusses the case for governments assessing the impacts of tax policy and administration on gender outcomes.
Tax policy has a key role to play in supporting governments’ efforts to ensure gender equality, not least because tax policy can have a material impact on women’s participation in the economy. The impact of the tax system on gender equality outcomes in OECD countries is typically indirect.
The progressivity of personal income taxes is a key feature in reducing post-tax income gaps between men and women, as well as between full-time and part-time workers. However, the tax system can create traps which disincentivise second earners (often women) from entering or re-entering the labour force, or that disincentivise part-time workers (also predominantly women) from working full-time. Even gender-neutral tax systems can have adverse impacts on gender equality.
Governments around the world are aware of the potential impacts of taxation on gender equality outcomes, but routine assessment of these impacts in either tax policy or tax administration and compliance is less common.
Removing gender bias from taxation is important both to ensure that the tax system does not discriminate against women and because taxation is one of the policy instruments that governments have at their disposal to enhance gender equality and to support women’s economic participation. The importance of addressing gender equality through tax policy was recognised by the G20, which identified it as one of the priorities of the G20 international tax agenda in 2021. This led to a recognition of the OECD analysis in this area at the G20 Finance Ministers and Central Bank Governors’ communiqué of February 2022, which referred to the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) report on Tax Policy and Gender Equality and called for further OECD work on the tax policy implications of gender equality (G20 Bali FMCBG Meeting, 2022[1]).
In setting tax policies, policy makers must balance several objectives such as revenue generation, efficiency, equity, simplicity, and transparency. Common perspectives for considering the equity of taxation include horizontal, vertical, and intergenerational equity, but there is also a strong case for assessing the equity of tax systems from a gender perspective.
Tax policy may have an impact on gender equality both directly – where tax policies or administrations explicitly treat men and women differently – and indirectly, via the interaction of tax systems with differences in underlying economic characteristics or behaviours between men and women, including for instance income levels, labour force participation, entrepreneurship, or consumption and savings patterns. These indirect impacts can lead to implicit biases, where an ostensibly gender-neutral tax system has different impacts on men and women in practice.
The degree to which countries consider the impact of taxes on gender equality differs markedly around the world. Tax Policy and Gender Equality: A Stocktake of Country Approaches (OECD, 2022[2]) presents a cross-country review of governments’ approaches to tax and gender, covering 43 countries from the OECD, the G20 and beyond. The report found that gender equality is an important consideration in tax policy design for most of the countries: approximately three-quarters of countries reported it was at least somewhat important. Similarly, 22 countries had introduced tax measures to improve gender equity, such as increasing tax subsidies for mothers, introducing individual taxation of labour income, and lowering VAT rates on feminine hygiene items.
Tax and transfer systems can affect men and women differently via explicit or implicit biases (Stotsky, 1996[3]). Explicit bias arises when a tax provision is legally related to gender; these can target either men or women. Even though these provisions are becoming less common, they are still present in a few countries. Seven of the 43 countries indicated cases of explicit gender bias in their tax systems (OECD, 2022[2]). Among this group, Switzerland reported that their personal income tax (PIT) involves gender bias due to the combination of household taxation with a progressive rate schedule, which often leads to poor incentives for a second earner – often the female partner – to enter the labour market; whereas Hungary provides a specific PIT allowance to women with four or more children.
Implicit or hidden biases, on the other hand, are more common. As with explicit bias, they can be harmful to either men or women. A well-known source of implicit gender bias in tax systems arises from the joint taxation of personal income, whereby the income of the family is taxed together as one unit rather than taxed separately for each individual. This leads to second earners in a household – typically women – paying higher marginal tax rates on their income, disincentivising labour force participation. Other implicit biases also occur in individual income taxation (see below).
The majority of the countries surveyed tax personal income on an individual basis. Six countries use a household unit, while nine allow taxpayers to decide between an individual or a household unit. Several countries noted the positive impact of shifting to individual taxation on increasing the female labour supply and enhancing equality based on historical reforms in their countries. Half of the countries surveyed acknowledged that implicit biases may arise in their tax system. For instance, as noted by a few countries (Argentina, Austria, Finland, Norway, Sweden, and the United Kingdom), due to differences in the nature of income between men and women, the preferential taxation of capital income can create a risk of bias in favour of men.
Despite the fact that many countries recognised that their system may generate implicit bias, most countries have not undertaken work to examine implicit bias in these tax systems, and guidance on how to do so is scarce. Twenty-five countries, or over two-thirds of the respondents, have not conducted analysis to detect and/or assess pre-existing implicit biases, with only 16 countries saying that they have. In addition, just five countries have implemented guidelines on how to address implicit biases in tax policy design (Austria, New Zealand, San Marino, Spain, and Sweden).
The design of income taxes can influence the financial incentives for workers to enter the labour market and the number of hours for which they participate.
One of the most common sources of implicit bias noted by countries occurs in individual income taxation. Individual income taxation can interact with a number of key labour force characteristics that differ between men and women, including labour force participation, earnings levels and working hours, in ways that lead to implicit gender biases.
Women are more likely to work part-time or in non-standard work, receive a lower salary on average than males, and are less likely to engage in the labour force (Chapter 13). Consequently, women are more commonly second earners in a household than men: they make up more than three-quarters of second earners in almost all OECD countries. The impact of tax systems on second earners is well documented – see for example Thomas and O’Reilly (2016[4]) – with many systems providing disincentives for second earners to enter or re-enter the labour force, as well as affecting the nature of their participation. These impacts may arise either because of joint taxation, which results in second earners paying higher marginal tax rates on their income, or because of the withdrawal or removal of family-based tax credits or allowances when the second earner enters the labour force.
For these two reasons, the net personal average tax rates for second earners (the combined personal income tax and employee social security contribution burden net of cash benefits) are higher than for single individuals at the same earnings level in the majority of OECD countries (Figure 25.1). The difference is even higher for families with children, due to higher levels of child-related benefits – and exacerbated further when non-tax costs such as childcare are included.
Note: Results account for child tax credits and child allowances and do not account for housing benefits, social assistance supports and unemployment benefits that may be available to single and one-earner couples. See the OECD Tax-Benefit model at https://www.oecd.org/social/benefits-and-wages/.
Source: OECD calculations based on OECD (2022[5]), Taxing Wages, https://doi.org/10.1787/20725124.
Focusing on part-time work is important. On average, women make up nearly two-thirds of the part-time labour-force, compared to only one-third of the full-time labour force. Across the OECD, women are three times as likely to work part-time as men (Chapter 13). Moreover, in 35 of the 38 OECD countries, female part-time workers earn less per hour than their male part-time counterparts. The taxation of part-time work therefore has major gender implications.
Tax systems generally reduce gender inequities between part-time and full-time wage, while creating disincentives for part-time workers to move to full-time work (Harding, Paturot and Simon, 2022[6]). As part-time workers earn considerably less (on average, around 40%) than full-time workers (predominantly men), the progressivity of the tax system reduces the differential in post-tax incomes, with positive gender implications. Similarly, the gap between male and female average part-time earnings is also reduced by taxation by around 1 percentage point, from 10.2% to 9.2%. However, the progressivity of the tax system, together with the removal of tax credits and allowances when a part-time worker enters full-time work, can lead to high marginal effective tax rates (METRs) on the transition from part-time to full-time work. These high METRs can result in a part-time work trap, by creating a disincentive to move from part-time to full-time work. Further, in all but five countries, the average METR on the transition from part-time to full-time employment is the same or higher for the second earner than for the single worker (Figure 25.2).
Source: Harding, Paturot and Simon (2022[6]), “Taxation of Part-Time Work in the OECD”, https://doi.org/10.1787/572b72d3-en.
The nature of implicit biases means that they may be less visible and harder to assess. One way of ensuring gender biases in the tax system are addressed is for policy makers to include an assessment of the impact of taxes on gender as a basic component of tax policy design. This can include processes such as gender budgeting – which ensures that gender equality considerations are taken systematically into account in tax and spending decisions (Chapter 4).
Routine assessment of gender outcomes in tax policy processes is not common across the countries surveyed. Sixteen out of the 43 responding countries undertake an ex-ante gender impact assessment for significant tax policies. Six of these countries have detailed instructions for policy makers in determining how taxes affect gender. Across all countries, almost half reported they use gender-disaggregated statistics and data across core policies and programmes to support tax policy choices. More broadly, while gender budgeting is used in 19 of the countries, only 5 of them include a requirement to do so for tax policy decisions, with 2 further countries considering introducing this in the future.
It is also important to assess the impact of tax administration on gender. In response to the survey, the vast majority of countries polled (34 out of 43) stated that they have not conducted any gender analysis of tax administration or compliance. Only three countries (Indonesia, New Zealand and Sweden) reported that they carry out gender analysis in tax administration or compliance. In addition, the majority of the surveyed countries (22 out of 43) do not collect gender-disaggregated statistics on tax compliance.
Moreover, countries have varying access to different forms of gender-disaggregated non-tax data for use in their analysis of the gender impact of tax policies and reforms (Figure 25.3). While 24 of the 43 respondent countries have access to detailed micro-data on income by men and women, and 17 of them reported that access to detailed micro-data on male and female labour-force participation is available, only 10 of them have access to detailed micro-data on male and female property and wealth taxes. Further, only seven of the respondent countries have detailed micro-data on male and female consumption. The fact that only a few countries are conducting analysis may be due to the lack of data, or to the fact that the impact of tax compliance and administration by gender has not yet arisen as a priority area in many countries.
Source: OECD Tax and Gender Stocktaking Questionnaire 2021 in OECD (2022[2]), Tax Policy and Gender Equality: A Stocktake of Country Approaches, https://doi.org/10.1787/b8177aea-en.
The OECD Forum on Tax Administration’s Gender Balance Network
The OECD’s Forum on Tax Administration (FTA) brings together Commissioners from over 53 advanced and emerging tax administrations. It has a broad work programme which looks to increase the fairness and effectiveness of tax administrations. Commissioners recognised that there was underrepresentation of women in senior executive roles in many FTA countries and female staff remain proportionally underrepresented in executive positions.
Therefore, in 2019, FTA Commissioners launched the Gender Balance Network. The Network aims to be a catalyst for positive institutional change to improve gender balance in tax administration leadership positions. It does this by developing mentoring and secondment programmes as well as exploring best practices across FTA member jurisdictions, including through the study Advancing Gender Balance (OECD, 2020[7]) and through reflections on the impact of COVID-19 on Gender Balance (OECD, 2020[8]).
Women leaders in tax transparency
Since 2011, the Secretariat of the Global Forum on Tax Transparency and Exchange of Information for Tax Purposes has been providing capacity-building assistance to its members. Reducing gender gaps in member jurisdictions is one of the goals of the Global Forum’s capacity-building strategy. As part of this effort, the Secretariat started mainstreaming gender equality considerations and monitoring the gender balance of its capacity-building activities, in particular via training programmes. In 2022, 56% of participants that attended training activities and seminars were women. The percentage of women was higher than men in all regions except Africa. However, the gender gap in Africa has reduced over recent years, with 41% of female participation in 2022 compared to 40% in 2021 and 34% in 2020.
In 2021, the Global Forum launched the Women Leaders in Tax Transparency programme, to further reinforce gender equality in tax administrations. Twenty-two women from 22 developing countries took part in the 2022 pilot programme. Following the success of the pilot programme, the second edition of the programme is now underway.
The main objectives of the programme are:
building strong skills in transparency and exchange of information for tax purposes (EOI) through a long-term programme
creating a female network to ensure further co-operation and experience sharing
promoting gender equality and the advancement of women in administrations
fostering higher female representation at international events.
Evaluate tax systems and tax reforms for both explicit and implicit forms of gender bias; and, where these worsen gender biases present in society, consider removing or reforming the relevant tax policy to avoid negative gender outcomes.
To further address the impact of implicit bias in tax systems, governments could develop and issue guidance for officials on how to take gender into account in tax policy design, as well as for tax administration purposes. Consideration of the impact of changes in the tax structure and mix are also important to assess for their impact on gender outcomes.
Seek to improve the quality of gender disaggregated non-tax data for analysis of tax policies, particularly on men and women’s consumption and property and capital ownership.
References
[1] G20 Bali FMCBG Meeting (2022), G20 Bali FMCBGs’ Communiqué, https://www.bi.go.id/en/G20/Documents/G20-Communique.pdf (utoronto.ca).
[6] Harding, M., D. Paturot and H. Simon (2022), “Taxation of part-time work in the OECD”, OECD Taxation Working Papers, No. 57, OECD Publishing, Paris, https://doi.org/10.1787/572b72d3-en.
[2] OECD (2022), Tax Policy and Gender Equality: A Stocktake of Country Approaches, OECD Publishing, Paris, https://doi.org/10.1787/b8177aea-en.
[5] OECD (2022), Taxing Wages, OECD Publishing, Paris, https://doi.org/10.1787/20725124.
[7] OECD (2020), Advancing Gender Balance in the Workforce: A Collective Responsibility, OECD, Paris, https://www.oecd.org/tax/forum-on-tax-administration/publications-and-products/advancing-gender-balance-in-the-workforce-a-collective-responsibility.htm (accessed on 5 April 2023).
[8] OECD (2020), “Gender Balance and COVID-19”, Letter to the Forum on Tax Administration Commissioners from the FTA Chair and the Chair of the Gender Balance Network, https://www.oecd.org/tax/forum-on-tax-administration/publications-and-products/letter-gender-balance-network-covid19-risks-challenges-opportunities.pdf.
[3] Stotsky, J. (1996), “Gender Bias in Tax Systems”, IMF Working Paper 96/99, https://papers.ssrn.com/abstract=882995.
[4] Thomas, A. and P. O’Reilly (2016), “The Impact of Tax and Benefit Systems on the Workforce Participation Incentives of Women”, OECD Taxation Working Papers, No. 29, OECD Publishing, Paris, https://doi.org/10.1787/d950acfc-en.