Female Market Work, Tax Regimes, and the Rise of the Service Sector
University of Zurich, Institute for Empirical Research in Economics, Working Paper No. 492, Revised version
54 Pages Posted: 8 Jul 2010 Last revised: 14 Jul 2017
Date Written: July 9, 2017
US regional variation shows a positive correlation between the size of the service economy and female market hours, which is partially driven by different tax regimes. Based on this fact, this paper develops a multi-sector model to: (1) quantify the effect of different tax regimes in incentivizing woman to enter the labor force, and (2) estimate the feedback effect from women entering the labor force on the service sector size. Counterfactual results suggest that tax progressivity has a stronger effect than tax levels on married female market hours and the speed of structural transformation. In addition, married households react more to progressivity increases and single households are more sensitive to level changes. These results highlight that models ignoring tax structures (levels and progressivity) and household heterogeneity (dual versus single earning households) could lead to erroneous policy conclusions.
Keywords: Technological progress, sectoral labor allocation, female labor supply, labor demand, taxation
JEL Classification: E21, E24, J20, O14
Suggested Citation: Suggested Citation