Gender equity and vertical equity

I'm spending today writing a review of Caren Grown and Imraan Valodia's new book Taxation and Gender Equity.The review is for the journal Feminist Economics, but I'll give you an uncensored sneak preview of the good bits here.

Vertical equity is a standard concept in taxation: people with a greater ability to pay taxes should do so, both in absolute terms and as a percentage of their income. Dispensing entirely with careful conceptual understandings, let's just say a tax system promotes gender equity if it's good for women.

Gender equity can conflict with vertical equity. India provides perhaps the most interesting example. Since 2005, women have had a higher personal income tax exemption than men. Men pay no tax on the first Rs. 150,000 they earn; women can earn up to Rs. 180,000 before paying tax (2008/9 tax brackets, $1US=40.24 Rupees). Unfortunately, “the number of women within the income tax net is a miniscule proportion of the total number of income taxpayers [3 percent] and an even more miniscule proportion of the total number of adult women in India [0.1 percent]” (the paper can be downloaded here). Even if this provision has some success in enhancing gender equity, the women who gain will be among the most privileged in Indian society, suggesting that this attempt to support gender equity compromises vertical equity.

Argentina gives a more complex example of the interaction between gender and vertical equity. Under its income tax act income from any marital property, that is, assets owned by the couple, shall be “totally allocated to the husband” unless certain conditions are fulfilled, for example, in specific cases where the asset was declared to be the wife’s separate property at time of purchase. In Canada such a law would be declared unconstitutional, as it differentiates amongst taxpayers on the basis of gender. 

Yet my guess is that the primary intent of the law was not to discriminate against women. Many countries with individually based tax systems, including Canada, have some kind of "attribution rules" to prevent income splitting. These rules prevent from couples reducing their total tax burden by transferring income to the partner with the lower marginal tax rate. The rules are usually justified on equity grounds. In Argentina, as in Canada, a relatively small proportion of the population have any significant amount of property income. Forced income aggregation in the hands of men increases the tax liabilities of a relatively wealthy group, thus enhances vertical equity -- even as it discriminates on the basis of gender.

And here's another complication: it's not obvious that this rule will always be bad for women. An Argentinian couple can still achieve some measure of income splitting, if assets are declared to be the wife's property, and not marital property. By encouraging female property ownership, the overtly discriminatory Argentinian tax legislation could conceivably be good for women, thus enhancing gender equity. 

Indeed, gender equity and vertical equity often go hand in hand, because women are disproportionately represented among the poor. The Grown and Valodia volume has a really neat example about the taxation of salt in Uganda, but it's a bit complicated to explain here. Instead, I'll give you a simple example from Canada Revenue Agency's Taxation Statistics. In 2008, women filed 51 percent of all income tax returns, earned 38 percent of all reported employment income, and paid 33 percent of all taxes. Canada's personal income tax system is progressive, with higher income earners paying higher rates of tax. Since men, on average, have higher incomes than women, they pay more tax than women - vertical equity and gender equity working together.

Perhaps this is one reason why reduced taxes don't cut it with women voters - paying fewer taxes in the first place, they have less to gain from tax cuts. And since there are more women than men receiving old age security and working in government-funded sectors such as health care and education, women have more to lose from cuts in government spending.

Comments

[William]

Here among Isaan people, when working construction, men and women can do the same work but women receive less money (men 6$/day; women 5$/day). When I paid the women a man’s wage plus a bonus for a job well done (they tend to cut corners), they were quite surprised. Once I had a worker severely injure his foot on the job. When I paid the hospital bill, it was the first time someone had done that for them.

Poor people here always work 7 days a week when on the job, which are nearly all seasonal (in the rice-fields) and part-time (construction jobs). When I asked Wan who does the most work in the rice-fields, she said men. But that had to be qualified: the women plant and the men do the plowing with the water-buffalo or more often with huge handheld roto-tillers now and some with small tractors. So, the men do more work; but the women work a lot harder. The best can plant up to 1600 sq. meters a day, but that's extraordinary and cannot be maintained day to day. The norm is more about 800 sq. meters a day.

The poor aren’t taxed here and their main form of transportation, 3-wheeled motorbike truck, doesn’t have to be licensed; nor do you need a driver’s license. Still, it’s a symbol of poverty. Driving around in mine, the city people are surprised; the country people smile, give me a thumb’s up, some have even cheered as i putt-putt by: top speed is about 45 km/hr.

[Patrick]

William: Isaan ... so you are in North Eastern Thailand?

[William]

Good, a question! Most of my experience and study for the past 10 yrs has been in SE Asia spread across Burma, Cambodia, Laos, Thailand and some in Indonesia (Bali and Lombok). But yes, what was related in my first post took place among the green-shirts in the middle of red-shirted Isaan country.

A link that summarizes it all quite well with an interesting Canadian angle and you can judge for yourself whether they're terrorists:
http://clpmag.org/article.php?article=The-New-Thai-Capitalism-Development-or-Disaster_162

[Geoff NoNick]

"Dispensing entirely with careful conceptual understandings, let's just say a tax system promotes gender equity if it's good for women."

Now, I know you said you were dispensing with the details here, but I can't let this pass unobserved: a tax system that is good for women (and that presumably could include a system that is rigged preferentially in their favour) promotes "equity"? How do you reckon?

[Mike Moffatt]

Interesting stuff! The data alone will have me busy for days.

One interesting twist: Women make up 45% of the payments towards EI Premium Non-Refundable Tax Credits (I would gather this means that roughly women make-up 45% of EI payments). But here's where it gets interesting - women collect 53% of EI payments. Arguably another case where gender equity and vertical equity may be at odds.

[Nick Rowe]

Geoff: I was wondering when someone would pick up on that! I took it as a tongue in cheek "operational definition".

I learned, from Frances, that Tsar Nicholas 1 (I think) once put a tax on beards.

Of course, you could also argue, especially if you ignore tax-incidence, that the whole tax system is rigged against men (though less so now, with greater women's participation in the market economy). Men do proportionately more, and women proportionately less, market production than non-market (home) production. And it's market activity that gets taxed. So, though some feminists (not Frances) argue that excluding home production from GDP by not measuring it shows bias against women, au contraire.

Plus, men die young. Aside from the intergenerational aspects, all "gender fair" pension plans, like CPP, are a transfer program from men to women. Compare pensions to life insurance, and car insurance. When statistics work against us, we pay higher premiums. When it works in our favour, we pay the same premiums.

Men, slowly gathering.....

[Wonks Anonymous]

Reminds me of John Lott's argument that women's suffrage (in the U.S) increased the growth of government.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=160530
He stated in an interview that his results don't imply that suffrage was a bad thing, but that was the conclusion Ann Coulter took away. From what I've heard though, married women don't vote that differently from men. It is unmarried women who are significantly more left-leaning.

[Patrick]

My better half says it's payback for childbirth.

I think it might just reflect biology/evolution. In general it probably makes sense to transfer wealth to females so they she can use it to ensure the survival of offspring (and thus pass on genes). Of course, that argument wouldn't apply to CPP since the recipients are past child bearing years...

[Frances Woolley]

Geoff - that's why the Indian example, which explicitly gives women a higher income tax deduction, is so interesting. I should tell you that the authors of that chapter on India were against that particular provision in their income tax act, because it is targeted towards such a privileged group.

In all fairness, I should give Grown's actual definition of gender equity (this is cut-and-pasted from the first chapter of Taxation and Gender Equity, see the link in the post above):

Elson (2006) develops the implications of the Convention on the Elimination of All Forms of Discrimination Against Women (CEDAW) for tax systems. Although there is no specific mention in CEDAW of taxation, CEDAW requires that families be based on ‘principles of equity, justice and individual fulfilment for each member’ (General Recommendation 21, para. 4). It implies that women be treated as equal to men in tax laws: as individual, autonomous citizens, rather than as dependants of men. Article 1, for instance, specifies that marital status is not an acceptable basis for any ‘distinctions, exclusions or restrictions’ which impair women’s equality with men in the enjoyment of human rights.6

CEDAW also recognizes that to achieve substantive (as opposed to formal) equality, different treatment of males and females may be permissible when that treatment is aimed at overcoming discrimination. Article 5 ‘requires State parties to modify social and cultural patterns of men and women to eliminate practices based on the idea of sex role stereotyping or the inferiority or superiority of either of the sexes’ (Inter-Parliamentary Union 2003). Thus, one could argue (as Elson does) that taxation systems should seek to help transform the traditional gendered roles in society that are inequitable. In other words, personal income tax systems (e.g., the structure of rates, exemptions, deductions, allowances, credits, etc.) should be designed to actively promote an equal sharing of both paid and unpaid work between women and men as well as eliminate incentives for the perpetuation of gender inequitable roles. This is quite a different interpretation from that provided by standard welfare economics, which takes individual utility as the basis of a social evaluation function to assess whether a policy reform improves social welfare and which adheres to the principle that reforms that make one group better off while making other groups worse off are undesirable.

I didn't use that definition because it takes too long to explain. Plus, to be a feminist is to believe that women are in some sense disadvantaged in today's society. Therefore improving the position of women makes society more equal - hence a way of evaluating policy is to see whether or not it's good for women.

Mike Moffat - is that EI info % claimants or %$ paid out? How much of the difference is due to maternity/parental leave?

Nick - The beard tax was, as far as I can make out, instituted in an attempt to try to westernize Russia.

Smokers also pay higher life insurance premiums but don't pay lower pension plan contributions, so male smokers are doubly disadvantaged in the pension department ;-).

But with state pensions, it's not that simple. E.g. in the US, when a one-earner couple retires and begins to collect social security, if the man dies the wife continues to collect a social security pension (unless she remarries). However if a two-earner couple retires and begins to collect social security, if the man dies the wife will just collect her own-account pension, she receives nothing from her husband's entitlement.

[Ross Hickey]

This is neat.
When reading this I couldn't help but thing of the the equity-efficiency trade-off and the recent suggestion (by the Mirrlees Report and elsewhere: http://www.voxeu.org/index.php?q=node/932) that gender based taxation would enhance efficiency as the labor supply elasticity of women is much larger than that for men.
If we really are interested in gender-equity accounting shouldn't we look at expenditure (in theory and practice), and not the institutions as there are too many targeted taxation/spending programs? Many tax credits or other instruments may not even appear to be gendered in their labels, but as other commentators have suggested, they often are in their uptake or participation.
I think the institutional features are very important if for no other reason than their salience, but if we are interested in welfare they are part of an important intermediate step.
I guess a good tax system should balance the salience of its characteristics with the properties of its outcomes.... as we're learning in BC with the HST revolt!

[Frances Woolley]

In 2009, anyways, men did fairly well out of the EI system, see this link.

For regular EI benefits, men had a benefit/contribution ratio of 0.55, as compared to women's 0.37. Women did relatively better out of special benefits, with men's benefit/contribution ratio standing at 0.61 and women's at 0.77. If you attempt to do some kind of adding it all together exercise, presumably including training expenditures etc., HRDC estimates that men have an "adjusted" benefits/contribution ratio of 1.17, women's ratio is 0.78.

Though these ratios will, of course, depend upon the phase of the business cycle, since men's employment tends to be more cyclical than women's.

[Frances Woolley]

Ross, thank you so much for that link. I had thought that some of the gender-based taxation proposals were conducted in much the same spirit as Mankiw's "height tax" proposal: see, if you take optimal taxation theory literally, you get silly conclusions. But the reality is much more interesting. I was struck by this passage:

First, [gender-based taxation] should be introduced not “in addition to” but largely “instead of” a variety of other policies already in place that favour women, like quotas, affirmative action, publicly supported child care facilities and care for the elderly. Often people who object to gender-based tax rates as favouritism to women seem to happily tolerate these other policies that are likely to be much more distortionary and less effective.

Advocates of gender equitable taxation: be careful what you wish for!

[Wendy]

Fascinating post. What caught my eye was the comment about women being less interested in tax cuts because they benefit less from them. Taking taxation consequences further, the shift toward higher consumption taxes (or value add taxes) like the HST, GST, PST and lower income taxes (assuming this happens) may hit women harder than men since women's income often has to purchase clothing and other items for children.

If we switch away from income tax and toward consumption tax, because it is supposed to be more equitable, maybe this actually works against gender equity? Frances, what do you think?

***
On the female use of EI benefits being higher, could that be because women tend to take more parental leave time (which is paid through EI) than their husbands/partners after the birth of a baby?

[Frances Woolley]

Wendy, thanks so much for your comments. I'm afraid this is a long winded answer that might not answer your question.

Just to clarify - I'm not sure which numbers exactly Mike Moffat was looking at, but overall men's use of EI bnefits is *higher* than women's because they are so heavily concentrated in industries that make relatively heavy use of EI e.g. construction. When I try to think of a person who is really disadvantaged by EI I think of a bank teller in Toronto - someone who contributes a higher percentage of her salary into EI than I do, but who, because she has a high level of job security, is unlikely to ever claim. Except for mat/pat leave.

The taxation and gender equity book is mostly about consumption taxes like the GST, and it is available as an e-book at the link above. In the majority of the countries that they look at, e.g. Uganda, Ghana, Morocco, India, more revenue is raised from consumption taxes than from income taxes, because when the economy is mostly informal it's hard to implement an income tax.

A few indirect taxes are progressive, e.g. in some of the countries studied fuel taxes and alcohol taxes were progressive because in these countries the wealthier people are, the greater the percentage of their income they spend in fuel or alcohol (this is not true in Canada, especially for fuel).

In Canada the exemption of basic groceries from the GST/HST makes it slightly progressive towards the bottom/middle of the income distribution, as does the refundable GST/HST credit. Upper middle/high income people, however, tend to save a higher percentage of their income, and because they're spending less, they pay less GST relative to their incomes.

But apart from that, GST/HST is more or less proportional - everyone pays more or less the same percentage on most of their spending. This is in contrast to income taxes, where a person earning $150,000 will pay a substantially higher percentage of his/her income in tax than a person earning $15,000.

So, yes, switching from income taxes to GST/HST will tend to benefit high income earners, who are mostly men, and hurt low-middle income earners, which is where women are.

(I'm going to ignore the possibility that salaries respond to taxes so the professional people's incomes increase when taxes increase).

Honstly, I don't think anyone is advocating switching from income taxes to consumption taxes on equity grounds, except if they're arguing "it's not equitable to tax savers more than spenders". I think there's a few reasons:

- When people are self-employed or work in very small businesses, it's hard to administer an income tax. So I think part of the switch towards consumption taxes is due to the changing nature of employment.

- You can't tax construction workers working for cash under the table, but you can tax new houses.

- (my mother's explanation) it's a way of taxing seniors, who don't pay much by way of income taxes

- With income taxes, if you earn income and then invest it, you pay tax twice, once on your earnings and again on your investment income. That doesn't happen with GST. Therefore some people think consumption taxes increase savings.

[Patrick]

"switch away from income tax and toward consumption tax, because it is supposed to be more equitable"

I think the argument is that consumption taxes are economically more efficient, not more equitable.

[Mike Moffatt]

Frances: EI Premium Non-Refundable Tax Credits - pg. 14 - http://www.cra-arc.gc.ca/gncy/stts/gb08/pst/fnl/pdf/tbl4-eng.pdf

[Ross Hickey]

Frances: no problem. And thank you very much for the post. I think of it as an equity-analogue to the "theory of the second best": Improving equity in one dimension while there are many other sources of inequality may even be equity reducing. This is really neat, and I'm sure my students will appreciate this post.
For what it's worth while a gender-based tax is similar to the "height tax", its implementation would likely be less controversial. The height tax was a solution to a tax and transfer problem, a purely redistributive problem, in the presence of incentive compatibility constraints. Introducing tax breaks for shorter workers or additional taxes for taller ones wouldn't likely have any effect on revenues through an effect on market hours worked. A gender-based tax break for women would likely have an impact on market hours worked, women would increase market participation. The effect on hours worked may be great enough to increase revenue.
Pushing the gender-based taxation idea to its limits (as the height tax did with optimal taxation theory) draws our attention to something that is at the heart of the problem: a gender-based tax credit directed at women is advocated because it would induce them to increase participation in terms of market hours worked. I don't think this is a bad idea because the idea of gender based taxation is silly from our conventional view of fairness, it is a bad idea because it would induce women to work more in the labor market at precisely the times when they are most likely to prefer the alternative. I suspect that the labor supply elasticity of women is larger because their return to non-market labor is much higher than that of men. While such a gender based tax credit may appear progressive in terms of the average burden it may be a regressive tax on women because of the negative outcome it could have on the welfare of women (if postponing non-market labor has a negative effect on their utility).

[Frances Woolley]

Mike, o.k., that source gives quite different information from HRDC website:

http://www.hrsdc.gc.ca/eng/employment/ei/reports/eimar_2009/annex/annex2_17.shtml

The HRDC numbers are the better ones to use, however, since anyone whose income is low enough that they don't pay taxes won't be able to claim the EI refundable credit, e.g. my daughter. Since women are more likely to work part-time they're more likely to be in that category.

[Mike Moffatt]

Agreed (hence my qualifier 'rough').

[Wendy Waters]

Thanks for all the discussion related to my question.

On the EI, I was reacting to this comment from Mike "One interesting twist: Women make up 45% of the payments towards EI Premium Non-Refundable Tax Credits (I would gather this means that roughly women make-up 45% of EI payments). But here's where it gets interesting - women collect 53% of EI payments. Arguably another case where gender equity and vertical equity may be at odds."

If women collect 54% of EI payments, but pay 45% I wondered if that was b/c of parental leave benefits and not just collecting while out of work.

[Frances Woolley]

William, I deleted your comment because it was just way too off topic.

Ross, you've touched on the reasons why I defined gender equity the way that I did. The Taxation and Gender Equity book says: "In other words, personal income tax systems (e.g., the structure of rates, exemptions, deductions, allowances, credits, etc.) should be designed to actively promote an equal sharing of both paid and unpaid work between women and men as well as eliminate incentives for the perpetuation of gender inequitable roles."

A decade or so ago, I would have agreed with this. I think. Now I think life's a lot more complicated. Until employers look at c.v.s and say "five years at home with your kids - wow, that's great managerial experience", staying home with the kids will hurt women's long term career prospects. And cash=bargaining power. If you have a good job, it's easier to walk away from an intolerable home situation.

But not everyone enjoys equal sharing of child rearing and housework - it's really annoying to have someone come along and say "that's not the right way to stack the dishwasher."

There's questions about what's best for kids, and issues of vertical equity among women - nannies who live half a world away from their own children to enable someone else to have a good job.

And lots of jobs are just not that great - would you rather spend a morning out with your kids swinging on the swings at the playground and having coffee with friends in Starbucks, or would you rather spend it serving coffee at Tim Hortons?

Of course some might say that this is a reason why men should get to stay home with the kids too.

So even though it sounded very careless, saying equity is what's good for women has the distinct advantage of not assuming anything about what "good for women" means.

[Frances Woolley]

Wendy, Mike was using the income tax statistics. If a low income earner doesn't have a high enough income to be liable for income tax (e.g. a single mother earning $20,000 per year) they won't actually report the amount that they paid on EI premiums on their income tax. If you look at the HRDC stats that I linked to in my comments, you'll see that men actually get higher benefits from the regular EI program, and also in total.

[Canadianpoliticaleconomy.wordpress.com]

Frances: I believe Mike is still correct and you may be misreading the HRDC figures. Ignoring the fact that the numbers reported are not without issue notwithstanding the footnote (eg: Males received $5809.2 in total benefits - regular and special - while Females received $5788.8 but the percentages of the national total are reported as 49.8% males, 50.2% females, which isn't possible if the numbers were accurate) males do receive more of the regular benefits as per the ratio of regular benefits to contributions ratio (.55 males, .37 females or adjusted 1.17 vs. 0.77 respectively) but when it comes to total benefits, including special (mat. leave, etc) benefits, then women not men benefit more. Woman received a ratio of 0.77 of regular and special benefits to contributions vs 0.61 for men or adjusted ratios of 1.14 women vs. 0.89 mean. Thus woman actually benefit more when mat. leave and other special benefits are factored in.

Also the CRA statistics that Mike pointed to include non-taxable returns as well as taxable ones thus I'm not entirely sure your reasoning stands as to why they would be incorrect. Your daughter's tax return would be included in those figures as should her EI contributions on schedule 1 of the federal form, unless you are suggesting people simply do not bother to fill in the information at all if they are already non-taxable, which might be true but I would, without proof, qualify it as an assumption. Anecdotally I always filled it out fully regardless of the necessity of doing so.

[Frances Woolley]

CPE, on the first point, you're right. Taking into account special benefits, EI in 2007 was pro-female. I couldn't find 2009 #s, but EI was probably more pro-male with the recent "he-cession" which saw much greater job loss among men.

On the second, this is really an issue of how the income tax statistics are calculated and how programs such as Quicktax work. If your income is $5000 and your basic personal amount credit is $10,000, do the tax statistics report you are receiving a basic personal amount credit of $10,000*.15 or $1,500? Or do they report $5,000*.15 or $750? I don't know for sure, but I would suspect the latter, otherwise it wouldn't add up - there would be thousands of dollars worth of basic amount tax credits against non-existent income.

So that makes me think that if you don't have enough taxable income to use the EI credit, that's reported as a credit of zero in the taxation statistics.

But CRA works in mysterious ways, so I'm not 100% certain.

[Canadianpoliticaleconomy.wordpress.com]

Frances: I can't speak for how Quicktax submits returns but it does appear from the CRA income statistics that Mike linked to that the tax records do reflect cases where someone's non-refundable tax credits exceed their income being reported as such.

To see this, if you look at the two following links http://www.cra-arc.gc.ca/gncy/stts/gb08/pst/fnl/pdf/tbl2-eng.pdf and http://www.cra-arc.gc.ca/gncy/stts/gb08/pst/fnl/pdf/tbl2a-eng.pdf, one is all tax returns by income class and the second is only taxable returns. Thus assuming no data issues, if one subtracts the later from the former, then we obtain the set of all non-taxable returns by income class. I haven't analysed things across all income categories but restricting myself to the first 3 Loss-nil, 1-$10,000 and $10,000 - $15,000 the total taxable income assessed is as follows: $0, $14,710,262 and $14,445,009 (numbers in $1,000). This is the income after various non schedule 1 deductions - such as RRSP or other things on T1 general before line 260 - i.e. the income upon which federal tax on schedule 1 is assessed.

The total non-taxable income credits for schedule 1 as reported therein are comprised of lines 43-55,56 and are as follows: $8,168,245, $42,187,260 and $27,155,108. Not that line 59 in those tables is the numbers above after the 15% basic rate has been applied and thus not directly comparable to the taxable income assessed noted above.

Thus for at least these three income class categories, the aggregate amount of non-refundable tax credits exceeds the amount of taxable income in each case, which is suggestive of the full amount of the tax credits being applied, even though it isn't necessary.

Note that in the Loss-nil category there is no taxable income assessed but there is $12.283 million of non-refundable EI tax credits reported so it would seem that they are not reported as zero.