Gender and Capital Gains Taxation

Abstract

Most countries grant capital gains preferential treatment under their income tax laws by either excluding them from taxation or taxing them at a lower rate than wage or interest income. Although this preference is not uncontroversial, few people question it on grounds of gender. Nevertheless, gender issues exist. Most obviously, men as a group benefit more from the preference than women because they generally have more capital gains than women. Moreover, a major justification for the preference is that it increases economic growth by encouraging investments. However, to the extent it does so, it can have a disparate impact on men and women because economic growth can affect men and women differently. More subtle gender differences also exist. Empirical evidence suggests that attitudes and behaviors regarding financial decisions, including capital gains, are gendered. Women, for example, being more risk averse than men, may have fewer capital gains because they invest in fewer risky assets, which are the type of assets that produce the biggest capital gains. Risk aversion could produce this result even if men and women value economic growth equally, but it is possible that women do not value economic growth per se as highly as men do. They might value economic security and steady income more than men and therefore prefer less volatile investments that produce ordinary income, such as certificates of deposits, to riskier investments that produce capital gains.

This essay explores the relationship between gender and capital gains taxation, an analysis that generally has been absent from debates about capital gains. Although it briefly looks at disparate impact due to disparities in economic situations, it concentrates on differences in attitudes and behaviors relative to capital gains. The essay’s limited space permits only an introduction; a fuller discussion awaits not only more space, but more data.

Keywords: capital gains, financial decisions, gender, income taxation, risk, tax policy, women, worldviews

JEL Classification: D31, E2, H24, J16