The case for Differentiated Taxation per Gender (DTG) in favour of women was presented at the Sole 24 Ore Forum on Leadership al Femminile on March 10, 2008. The logic behind this proposal is that often, more so in Italy, the tendency, after maternity leave, is for women to remain at home to look after the children. Moreover, any unforeseen circumstances like illnesses including those of family members is perceived to be the woman’s responsibility and it is assumed that she will give up her career to bear the burden. After all it is taken for granted that any chances of a career will naturally be hindered due to pregnancy or if it would take off at all. Her pay is usually lower than that of her partner and therefore logically it makes sense to support the breadwinner from a cost benefit point of view.
The downside of this is many unhappy women; lack of resources in the job market and an imbalance of share of responsibility in the home. Should the world come tumbling down for instance in the case of an illness or a separation – as they say in England – you’re buggered!
Professor Ichino of Bologna University together with two other professors from Harvard University put together a proposal in order to induce women to enter the workforce whether after maternity leave or in general because they tend to be disadvantaged. It is true that children need their parents especially in the first years of life-the proposal however, also serves to encourage men to share the responsibility, create resources within the family and not to impact families who want to have children!
<>The theory is that, the supply of women labour is more responsive to their after tax wage. So a reduction in taxes increases the labour participation of women substantially. Men’s labour supply is more rigid so an increase in taxes does not reduce their labour supply by much, if at all. Ergo, for a given tax cut on women, with a smaller tax increase on men one maintains the same total revenue with little tax distortion for the State. This is simply an application of the general principle of public finance that goods with a more elastic supply should be taxed less. Thus it should be relatively cheaper for an employer to hire women and discrimination becomes more costly.There are two ways to achieve this. Based on the assumption that everyone works and GDP remains constant, a different set of tax deductions can be applied to women, which has the disadvantage that women with jobs in a higher tax bracket may not benefit. The alternative is to set different tax rates on income which is the method preferred by Professor Ichino et al. According to the Professor, in Italy the difference in tax rates could be as much as 30% based on the current tax system.
Objections are typically oriented around two beliefs: that a woman’s place is in the home; and that any policy that favours a historically disadvantaged group is reactionary. In any case, the proposal is discriminatory and anti-constitutional. However, as Professor Ichino points out, this is nothing new. There is nothing more hypocritical than to invoke equal treatment in some areas (taxation) for those who are not treated equally in many other areas (the labour market and in the family, such as rearing children or caring for elder family members). There are already a host of polices that are not gender neutral in Italy e.g. tax deduction for families with children. These could be eliminated by adopting a simple differentiation of tax schedule for both men and women. This proposal could even be applied temporarily to instigate change in the balance of working women.
The proposal has been widely debated. Minister Visco liked the proposal to create fiscal advantages, but he stated that differentiation should take place on the side of the company and not directly on the woman. In theory it should have the same effect, therefore inducing companies to hire more women. In practice, this is not true – Ichino points out that it is better to give the incentive directly to the job seeker to look for a job.
The concept forms part of the pre electoral programs in both political camps. The left should appreciate the emphasis on an increase of women’s participation and success in the labour market. The right should appreciate the fiscal efficiency of the proposal that would substitute publicly provided services and substitute quotas and affirmative action. One will have to wait and see just how serious the winning party is to implement such a change.