Taxes and Market Hours: The Role of Gender and Skill

Robert Duval-Hernández, Lei Fang, and Rachel Ngai

Working Paper 2017-8
September 2017

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Cross-country differences of market hours in 17 countries belonging to the Organisation for Economic Co-operation and Development are mainly due to the hours of women, especially low-skilled women. This paper develops a model to account for the gender-skill differences in market hours across countries. The model explains a substantial fraction of the differences in hours by taxes, which reduce market hours in favor of leisure and home production, and by subsidized care, which frees (mostly) women from home care in favor of their market hours. Low-skilled women are more responsive to policy because of their low market returns and their comparative advantage in home activities.

JEL classification: E24, E62, J22

Key words: Cross-country differences in market hours, home production, subsidies on family care


The authors thank Alessio Moro, Chris Pissarides, Michelle Rendall and Etienne Wasmer, as well as seminar participants at CIDE, ILO, and LSU, and conference participants at the Midwest Macro meetings 2016, the Econometric Society North America summer meetings 2016, the Conference on European Employment at the University of Cyprus 2016, the Conference on Structural Transformation and Macroeconomic Dynamics at the University of Kent 2016, the Conference on Growth and Development at Madrid 2017, the Asian and China meetings of the Econometric Society 2017, the Society for Economic Dynamics meeting 2017, and the Tsinghua Workshop in Macroeconomics 2017 for useful comments. The views expressed here are the authors' and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. The authors acknowledge financial support from the European Research Council EUROEMP Advanced Grant (#323940) administered by the University of Cyprus. Any remaining errors are the authors' responsibility.
Please address questions regarding content to Robert Duval-Hernández, University of Cyprus, CIDE, and IZA, Economics Research Centre, P.O. Box 20537, CY-1678 Nicosia, Cyprus, 357-22893731, rduval@ucy.ac.cy; Lei Fang, Federal Reserve Bank of Atlanta, Research Department, 1000 Peachtree Street NE, Atlanta, GA 30309-4470, 404-498-8057, lei.fang@atl.frb.org; or L. Rachel Ngai, London School of Economics, CEPR, and CfM, Department of Economics, Houghton Street, London WC2A 2AE, UK, (44) 207-955-7017, l.ngai@lse.ac.uk.
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