Tax disincentives and female employment in Organisation for Economic Co-operation and Development (OECD) countries

Abstract

This paper analyses whether favourable taxation of married couples distorts women’s employment decisions. In contrast to previous research concentrating on experiences in a single country, this paper investigates cross-country differences in female labour force participation. The paper shows that, for a panel of Organisation for Economic Co-operation and Development (OECD) countries during the period 1979–2002, distortions with respect to the taxation of single and married persons can account partly for differences in female labour market participation across countries. However, we find also strong evidence that unfavourable market conditions due to high unemployment as well as few income opportunities have a deterring effect on female labour force participation, indicating that the decision to work is also driven by market forces. With respect to different countries the results suggest that especially in Ireland and the UK tax distortions have played a crucial role in distorting incentives to work.