So, we\’ve a theory. That higher marginal tax rates will lead to people withdrawing their labour from the market.
We expect this to be greatest among women with children. For obvious reasons: the higher the marginal tax rate the more attractive looking after your own children will seem as opposed to working, suffering the tax bite, then paying someone else to do it.
So, to measure this, should we look at female labour force participation rates?
No doubt that (theoretically) high taxes could discourage effort but is this statement empirically relevant? Below is a chart of marginal tax rates (as estimated by the OECD) and the female employment to population ratio for the age range (25-54) for 2010. I have chosen that particular employment to population ratio because it matches the statement in the quote above (the chart looks similar if we look at a different age range or male participation rates).
Well, as he says, doesn\’t really seem to tell us very much.
So, here\’s the task for any budding economist who is looking for a paper to write. Instead of looking at labour force participation, which can be skewed by all sorts of things, cultural influences of course, part time working and so on, let\’s look at what it is that we really want to look at.
Which is we want to know, are these women substituting household production for market production in the face of these high marginal tax rates?
That is the original contention, of course. Not that women (or people in general, as above we just expect women to be more sensitive to this effect) work more or less in total in the face of taxes. But that they substitute away from the taxed activity to untaxed. That untaxed activity could be leisure, of course, or it could be household production.
Now, yes, we do have this information, for the EU at least it is here. How do people spend their time, in personal time, household work, market work and leisure? Split by country and sex (at least, there might be deeper with age group, family structure, not sure).
Marginal tax rates aren\’t that hard to find. So, a paper comparing *both* household and market working hours as against marginal tax rates.
Some of this work has been done in the LIS project (Smeeding is a name to conjure with I think) and I\’ve certainly seen one paper which shows that the average German woman is working more hours in total than the average USian woman. Despite the latter doing many more market working hours.
The result I would expect to see is that the higher the marginal tax rate the more subsitution there is away from market production to household production. And I\’d even expect to see, at times, longer total working hours for the \”same\” living standard at high marginal income tax rates. For market work is subject to the division and specialisation of labour, household production not so much.
To do this one needs to be able to play with Excel and graphs and charts and statistical tests on variance and SD and chi squared and so on. None of which I know how to do so, anyone looking for a paper to write?