February 2020

IMF ST A F F D ISC U SSIO N N O T E

Women in the Labor Force:

SDN/20/03
The Role of Fiscal Policies

Stefania Fabrizio, Anna Fruttero,

Daniel Gurara, Lisa Kolovich, Vivian Malta,
Marina M. Tavares, and Nino Tchelishvili

DISCLAIMER: Staff Discussion Notes (SDNs) showcase policy-related analysis and research being
developed by IMF staff members and are published to elicit comments and to encourage debate.
The views expressed in Staff Discussion Notes are those of the author(s) and do not necessarily
represent the views of the IMF, its Executive Board, or IMF management.
WOMEN IN THE LABOR FORCE: THE ROLE OF FISCAL POLICIES

INTERNATIONAL MONETARY FUND

Strategy, Policy, and Review Department

Women in the Labor Force: The Role of Fiscal Policies

Stefania Fabrizio, Anna Fruttero, Daniel Gurara,

Lisa Kolovich, Vivian Malta, Marina M. Tavares, and Nino Tchelishvili1

Authorized for distribution by Martin Mühleisen

DISCLAIMER: Staff Discussion Notes (SDNs) showcase policy-related analysis and research
being developed by IMF staff members and are published to elicit comments and to encourage
debate. The views expressed in Staff Discussion Notes are those of the author(s) and do not
necessarily represent the views of the IMF, its Executive Board, or IMF management.

JEL Classification Numbers: D15, J16

Female labor force participation; gender-responsive fiscal
Keywords:
policy; inequality; labor productivity; overlapping
generations general equilibrium model; poverty
SFabrizio@[Link]; AFruttero@[Link];
Authors’ E-mail Addresses:
DGurara@[Link]; LKolovich@[Link]; VMalta@[Link];
MMendesTavares@[Link]; NTchelishvili@[Link]

1
Research assistance was provided by Sibabrata Das, Angelica Martinez, and Carine Meyimdjui and production
assistance by Natalia Romanova and Elisavet Zachou. The note draws on research produced under the project on
macroeconomic research on low-income and developing countries (project id: 60925) supported by the UK
Department for International Development (DFID). The views expressed herein are those of the authors and should not
be attributed to the IMF, its Executive Board, or its management.

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 WOMEN IN THE LABOR FORCE: THE ROLE OF FISCAL POLICIES

CONTENTS
EXECUTIVE SUMMARY __________________________________________________________________________ 4

INTRODUCTION _________________________________________________________________________________ 6

FEMALE LABOR FORCE PARTICIPATION: STYLIZED FACTS____________________________________ 8

GENDER-RESPONSIVE FISCAL POLICIES AND THEIR MACROECONOMIC AND

DISTRIBUTIONAL IMPACTS____________________________________________________________________ 13

POLICY LESSONS _______________________________________________________________________________ 27

BOXES

1. Gender Budgeting to Promote Gender Equality _______________________________________________ 11

2. Previous IMF Policy Work on Gender Equality Using Similar Methodology____________________ 21

FIGURES

1. Female Labor Force Participation and Male-Female Gap in Labor Force Participation
between 1990 and 2018 __________________________________________________________________________ 8
2. Female Labor Force Participation Rates by Income Groups ____________________________________ 9
3. Female Labor Force Participation across Countries _____________________________________________ 9
4. The Positive Impact of Selected Fiscal Policies on Female Labor Force Participation __________ 12
5. Macroeconomic and Distributional Effects of Subsidized Childcare ___________________________ 17
6. Macroeconomic and Distributional Effects of Paid Maternity Leave ___________________________ 19
7. Macroeconomic and Distributional Effects of Changing Income Taxation Filing
from Jointly to Separately _______________________________________________________________________ 20
8. Impact from Closing the Gender Education Gaps on Female Labor Force Participation
by Quantile ______________________________________________________________________________________ 22
9. Macroeconomic and Distributional Effects from Closing Gender Gaps in Education __________ 23
10. Impact of Better Infrastructure for Safe Water on Female Labor Force Participation
by Quantile ______________________________________________________________________________________ 23
11. Macroeconomic and Distributional Effects from Investing in Infrastructure for Safe Water __ 24
12. Impact of Cash Transfers on Female Labor Force Participation by Quantile __________________ 25
13. Macroeconomic and Distributional Effects of Cash Transfers to Poor Women
Who Participate in the Labor Market ____________________________________________________________ 25

REFERENCES______________________________________________________________________________________28

ANNEX

I. Modeling Framework __________________________________________________________________________ 34

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EXECUTIVE SUMMARY
Despite the increase in female labor force participation over the past three decades, women
still do not have the same opportunities as men to participate in economic activities in most
countries. The average female labor force participation rate across countries is still 20 percentage
points lower than the male rate, and gender gaps in wages and access to education persist.
As shown by earlier work, including by the IMF, greater gender equality boosts economic growth
and leads to better development and social outcomes. Gender equality is also one of the 17 United
Nations Sustainable Development Goals that 193 countries committed to achieve by 2030.

Since the mid-1980s, many countries have adopted fiscal policy measures to promote gender
equality. Countries use tax and expenditure policies to address gender inequality and the
advancement of women in areas such as education and economic empowerment. As of 2018, at
least 80 countries have used gender-responsive fiscal policy interventions to reduce gender
inequality.

This note explores how gender-responsive fiscal policies affect women’s participation in the
paid workforce (female labor force participation), gender wage gaps, economic growth,
income inequality, and poverty in both advanced economies and low-income countries.
Understanding the effects of gender-responsive fiscal policies not only on gender inequality but
also on other macroeconomic and social variables is essential for policymakers in designing
effective and sustainable gender-responsive fiscal policy measures, particularly in a fiscally
constrained environment. Focusing on selected interventions, the note examines (1) the
macroeconomic and distributional consequences of fiscal policy interventions aimed at fostering
women’s entry into the labor market; and (2) the channels and mechanisms through which these
policies affect female labor force participation, growth, inequality, and poverty, given the structural
characteristics of advanced economies and low-income countries.

For illustrative purposes, the note zooms in on selected fiscal interventions that are regarded
as promoting gender equality in advanced economies and low-income countries (IMF 2018a).
For advanced economies, it focuses on reducing the cost of childcare, providing publicly financed
maternity leave, and removing tax provisions that discriminate against secondary (predominantly
female) earners. For low-income countries, the note analyzes the impact of investing in education,
providing cash transfers to poor women in the labor force, and investing in infrastructure (for
example, clean water) to provide a level playing field for women.

The findings confirm that these gender-responsive fiscal policies can support female labor
force participation and have important macroeconomic and distributional effects. The scope
of the analysis is to shed light on the key channels through which policies impact women’s
participation in the paid workforce, economic growth, income inequality, and poverty, rather than
considering trade-offs among the different measures and ranking them. The impact and the
transmission channels of the different fiscal interventions depend on both the design of the
measures and a country’s features, such as its level of development, labor market and economy

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structures, education gaps between men and women, and the degree of discrimination against
women’s economic empowerment. The results of our illustrative analysis suggest the following:

• In advanced economies, removing tax provisions that discriminate against secondary earners
would have a very significant positive impact on female labor force participation for all women
and for economic growth, at no fiscal cost in the long run. The measure would also increase the
progressivity of the tax system, with a positive impact on both inequality and poverty. However,
this measure could potentially have a negative impact on some married, single-earner
households. Subsidizing childcare and providing paid maternity leave would boost economic
activity supported by an expansion of female labor force participation, mostly among women
with low and moderate skills.

• In low-income countries, investing in education and in infrastructure projects that have higher
return for women, such as for safe water, would have the largest economic and social payoffs
while boosting female labor productivity. While investing in education is important for shaping
future labor force productivity providing cash transfers to poor women in the labor force can
help reduce poverty in the meantime.

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INTRODUCTION
1. The global average gap between male and female labor force participation rates has
declined over the past 30 years, yet differences across countries are striking. Globally, the gap
decreased from 27 percentage points in 1990 to 20 percentage points in 2018. However, during the
same period, while four-fifths of countries saw the gap decrease or remain steady, the gap increased
in the remaining 20 percent of countries due to declines in female labor force participation.2
For example, female labor force participation increased in Peru (28 percentage points), Spain
(27 percentage points), Cabo Verde (25 percentage points), and Maldives (23 percentage points) but
declined in Papua New Guinea (25 percentage points), Sri Lanka (11 percentage points), China
(10 percentage points), and Romania (8 percentage points). Furthermore, in 2018, the gender gap in
labor force participation in 37 countries exceeded 35 percentage points.

2. Higher female labor force participation directly promotes economic growth. Women’s
economic empowerment is key for growth both through the direct impact of the size of the labor
force on output and the impact on productivity (Cuberes and Teignier 2016) and through higher
domestic demand. Greater participation of women in the labor force also brings greater diversity
that can foster new ideas for production and management, boosting aggregate productivity (Ostry
and others 2018; Christiansen and others 2016a; Loko and Diouf 2009). A wide range of country and
regional case studies provides further support for the positive relationship between female labor
force participation and growth. For example, the entry of married women greatly expanded
potential GDP in the United States in the 1970s and the 1980s (Juhn and Potter 2006). Tsani and
others (2013) show that removing barriers to female labor force participation could have a
significant positive impact on growth in Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, Palestine,
Syria, Tunisia, and Turkey. Increased female labor force participation could also support growth in
rapidly aging developed economies such as Japan (Steinberg and Nakane 2012). In addition, the
International Labour Organization estimates that reducing the gender gap in participation
25 percent by 2025 could boost global GDP 3.9 percent (ILO 2017).

3. Higher female labor force participation also reduces income inequality and poverty.
Gender inequality in economic opportunities is associated with a more unequal overall income
distribution; if a country were to move from complete gender inequality, as measured by the United
Nations Gender Inequality Index, to perfect gender equality, net income inequality as measured by
the Gini coefficient would decrease by approximately 10 points (Gonzales and others 2015). Growth
in women’s labor market earnings and higher participation rates, along with the introduction of
noncontributory pension programs for women, were the main factors that contributed to the
reduction in Latin America’s poverty in the first decade of the 2000s (World Bank 2012).

4. Gender equality in its various facets is associated with higher growth; thus, lower
gender gaps in labor force participation also raise growth. For low-income countries, a reduction

2
Our sample comprises 190 countries for which information on labor force participation is available in the World
Bank World Development Indicators.

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in gender inequality of 1 percentage point, as measured by a multidimensional index that combines

gender gaps in opportunities and outcomes, is associated with higher cumulative growth, over five
years, of 0.2 percentage point (Hakura and others 2016). Greater gender equality in education can
also impact economic growth. Meta-analysis of the empirical literature on the link between gender
inequality in education and per capita economic growth shows that studies that include education
by gender as separate covariates in growth regressions report larger correlation sizes of female than
male education with growth (Minasyan and others 2019). The importance of investing in women’s
by gender as separate covariates in growth regressions report larger correlation sizes of female than
education is also underscored by the finding that in Korea higher female labor force participation
reduced productivity as women initially started with lower human capital (Han and Lee 2020).

5. Fiscal policy is a powerful tool to close gender gaps. In advanced economies, childcare
subsidies, paid parental leave, and a shift from household to individual tax filing have been used to
encourage female labor force participation (Andresen and Havnes 2019; Bick and Fuchs-Schündeln
2017; Gelbach 2002; Kalb 2018; Christiansen and others 2016b, c). In developing economies,
investing in female education and in infrastructure (including electricity, roads, water and sanitation)
that reduces the time women spend on household production has yielded positive results in terms
of female labor force participation (Cubas 2016; Dinkelman 2011; Ilahi and Grimard 2000; Jain-
Chandra and others 2018)3. Cash transfers are also shown to have a positive effect on female labor
force participation.4

6. Yet, there is little understanding of the transmission channels through which fiscal
policy addresses gender inequality. Empirical evidence suggests that there is a short-term
correlation between fiscal policy shocks and female labor force participation (Akitoby, Honda, and
Miyamoto 2019). Beyond these short-term correlations, however, it is imperative to understand the
long-term effects of fiscal policy on gender inequality, the transmission channels, and possible
interactions with macroeconomic and social variables, so that policymakers can design effective and
sustainable gender-responsive fiscal policies. However, much of the literature has focused on
processes and case studies,5 and to date there have been few studies analyzing the causal links and
the transmission channels between fiscal policies and gender equality outcomes.

7. This note aims to shed light on the impact and transmission channels of gender-
responsive fiscal policies regarding gender inequality and economic and social outcomes.
It uses general equilibrium models that reflect features of a typical advanced economy and of a low-
income country. Given the extensive heterogeneity among emerging market countries in terms of
their macroeconomic and structural features, including gender-related outcomes, it is not possible
to settle on a representative case for parametric estimation. Thus, while the parametrization does

3
See also Lei, Desai, and Vanneman (2019), and Minasyan and others (2019).
4
See Salehi-Isfahani and Mostafavi-Dehzooei (2018), Mostert and Castello (2019), and Asfaw and others (2014).
5
For instance, Stotsky and Zaman (2016) show that Indian states that adopted pro-female fiscal policies have made
more progress on gender equality in primary school enrollment than those that have not adopted such policies.

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not include emerging markets, issues related to gender inequality in such countries have features
similar to those in advanced economies, low-income countries, or both, depending on the country in
question, and lessons can be inferred from the examples considered. This note analyzes the impact
of selected gender-responsive fiscal policy interventions and examines the mechanisms through
which the policies affect female labor force participation, wage gaps, GDP growth, public fiscal
balances, income distribution, and poverty.6 This provides essential information for policymakers,
who, in a fiscally constrained environment, intend to adopt fiscal policy measures to empower
women economically and, at the same time, need to tackle other economic and social priorities,
such as sustainable and inclusive growth, inequality, and poverty.

8. The rest of the note is structured as follows. The next section provides stylized facts on
female labor force participation. The section after that describes the modeling framework and
discusses the impacts of selected gender-responsive fiscal policies in advanced economies and low-
income countries. The last section offers the main policy lessons.

FEMALE LABOR FORCE PARTICIPATION: STYLIZED FACTS

A. Developments in Female Labor Force Participation

Figure 1. Female Labor Force Participation and Male-Female Gap in Labor Force
Participation between 1990 and 2018
A. Gender Gap in Labor Force Participation B. Female Labor Force Participation
90 100
Male-female labor force participation

Female labor force participation

(percentage of women 15- 64)

75
80
60
(percentage points)

45 60
30

15 40

0
20
-15

-30 0
1990 1995 2000 2005 2010 2015 2018 1990 1995 2000 2005 2010 2015 2018

Sources: World Bank, World Development Indicators; and authors' calculations.

Note: The lower and upper lines of the box represent the first and the third quartiles respectively; the upper and lower whiskers represent
the highest and the lowest points, respectively; the line inside the box represents the median, and the dot represents the average.

9. Although the gender gap in labor force participation has declined substantially over
the past 30 years, average female labor force participation remains well below the male rate.

6
A comprehensive assessment of all gender-responsive fiscal interventions is beyond the scope of this note.

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Increased female labor force participation and stable male labor force participation led to a
7 percentage point decline in the global gender gap in labor force participation, which fell to

Figure 2. Female Labor Force Participation Rates by

20 percentage points in 2018
Income Groups
(Figure 1, panel A). However, on
70
average only 60 percent of 15- to

Female labor force participation

(percentage of women 15- 64)
64- year-old women were in the labor 65 Advanced economies

force in 2018 (Figure 1, panel B)

60 Low-income countries
compared with 80 percent of men.
In 21 countries, including India, 55

Pakistan, and Egypt, female labor

50
force participation was below Emerging markets

30 percent. 45
1990 1995 2000 2005 2010 2015 2018

Sources: World Bank, World Development Indicators; and authors' calculations.

10. The global rise in female
labor force participation has been
driven mostly by changes in advanced economies and emerging markets (Figure 2). In 2018,
advanced economies as a group had the highest female labor force participation rate, at 70 percent,
which reflects an increase of 12 percentage points over the past two decades. Rates remained
relatively stable in low-income countries, at about 63 percent. In emerging markets, the average rate
increased by 5 percentage points but remains substantially lower than in advanced economies and
low-income countries. Higher female labor force participation was driven mostly by labor market
policies, structural transformation, gains in educational attainment, and shifts in social norms
(Grigoli, Koczan, and Topalova 2018; Klasen 2019).

Figure 3. Female Labor Force Participation across Countries

A. Change, 1990-2018
(Percent, annual average)

Sources: World Bank, World Development Indicators; and authors' calculations.

11. Averages mask important differences across countries. Female labor force participation
varied widely (Figure 3) across countries, from 15 percent in Algeria and Jordan to 86 percent in
Iceland. This reflects historical differences in economic and social structures that have affected

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WOMEN IN THE LABOR FORCE: THE ROLE OF FISCAL POLICIES

women’s economic opportunities (Klasen 2019). Countries also differ greatly in the growth of female
labor force participation since 1990. Globally, about one-quarter of countries have experienced
declining female labor force participation. Countries such as India and Sri Lanka faced an average
annual decrease of 1 percent between 1990 and 2018, whereas Pakistan, Peru, and Spain
experienced average annual increases of 2 percent.

12. Trends in female labor force participation are affected by factors such as household
economic conditions, growth of jobs deemed socially appropriate for more educated women,
and occupational barriers within the sectors that predominantly employ women (Klasen 2019).
Social norms and legal barriers thus play significant roles in explaining the variations in female labor
force participation. For example, an Organisation for Economic Co-operation and Development
(OECD) report (2019) points out that 88 countries prohibit women from entering certain professions,
32 countries prohibit women from remarrying within a specified period after a divorce, and
29 countries do not grant female surviving spouses and daughters the same rights as their male
counterparts to inherit land and nonland assets. Moreover, despite legal requirements on the
minimum age for marriage in most countries, early marriage remains possible in 112 countries due
to parental or judicial consent exemptions. Deprived inheritance rights and early marriage affect
female labor force participation by constraining women’s prospects to invest in their human capital
or use such capital in the formal labor market.

B. Gender-Responsive Fiscal Policies

13. Fiscal policies have been used extensively to boost overall employment. They can play
an important role in promoting labor market entry due to the link between labor supply and income
(IMF 2012). Many fiscal policy reforms aim to boost employment for both women and men, but
some are directly focused on boosting female labor force participation. For various reasons, related
also to social norms, women face specific barriers to entering and remaining in the labor market,
resulting in low labor force participation. Yet, there is ample evidence that when women can develop
their full potential, there can be significant macroeconomic gains (Elborgh-Woytek and others 2013).

14. Fiscal policy interventions can be shaped to help improve gender equality. Since the
mid-1980s, many countries have adopted gender budgeting―the design and use of tax and
expenditure policies and/or public financial management instruments to address gender inequality
and the advancement of women in areas such as education, health, and economic empowerment
(Box 1). Several international organizations, including the IMF, provide policy advice and technical
assistance to countries in this area.7 As of 2018, more than 80 countries had adopted gender
budgeting with varying levels of intensity (Kolovich 2018).

15. Empirical evidence for advanced economies suggests that income taxation has a
significant impact on female labor force participation. The design of a country’s tax system has
both distributional and allocative effects—impacting the distribution of income across the

7
This note focuses on pro-female fiscal policy measures; it does not cover the broader approach to gender
budgeting, which includes budget institutions.

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population, including between women and men, as well as individuals’ decisions about working in
the informal or formal sector. In countries with a system of joint taxation, the incomes of husband
and wife are pooled and then taxed using a set of tax brackets that are typically wider than the
brackets for unmarried individuals. The after-tax return from taking a job is lower for a married
woman, who often is the secondary (lower) earner within the couple, than for an otherwise similar
single woman (LaLumia 2017). For instance, using a sample of 17 European countries and the United
States, Bick and Fuchs-Schündeln (2017) show that female labor supply would have been higher by
almost 8 percent in the United States and 35 percent in Belgium in the absence of joint taxation.
Cross-country correlations for advanced economies show a negative relationship between female
labor force participation and taxation of the secondary earner in married couples (Figure 4).

Box 1. Gender Budgeting to Promote Gender Equality

Gender budgeting allows fiscal authorities to ensure that tax and spending policies and public financial
management instruments address gender inequality and the advancement of women in areas such as
education, health, and economic empowerment (Budlender and Hewitt 2003; Budlender and Sharp 1998;
Elson 2003; Stotsky 2006, 2016; IMF 2017a, 2020; Kolovich 2018). It helps governments analyze fiscal policies
(revenue and expenditure) and budgetary decisions to understand their impact—both intended and
unintended—on gender equality and to use this information to design and implement more effective fiscal
policies to support gender equality. Such approaches can be applied at all stages of the public financial
management cycle. IMF research has examined gender budgeting across all regions and levels of
development (Kolovich 2018), including through an in-depth study of gender budgeting in Group of Seven
countries (IMF 2017a) and a forthcoming study on G20 countries (IMF, forthcoming). This body of work
highlights the contribution of well-structured fiscal policies and sound budgetary institutions to gender
equality. Countries should adopt fiscal policy instruments tailored to their particular gender gaps. To help
support these policies, countries should integrate a gender-oriented approach into the public financial
management cycle.

Countries have taken diverse approaches to gender budgeting, and there is no one-size-fits-all method.
To gain a better understanding of cross-country good practices, the IMF, in collaboration with the UK
Department for International Development, surveyed all member countries on their gender budgeting
practices in 2015. Two years later, an in-depth survey, used in recent studies (IMF, forthcoming), gathered
data from over 70 countries. The results from these analyses identified several factors that contribute to
the success of gender budgeting efforts. They generally include political support for better gender equality,
a legal basis for gender budgeting, and the support of the Ministry of Finance and senior-level management
within spending ministries. Countries, however, also highlighted gender budgeting implementation
challenges, including lack of guidance on how to incorporate gender considerations into the annual budget,
the poor quality of gender analysis and assessments, the lack of gender disaggregated statistical data, and
weak coordination across ministries.

The IMF has worked with over 60 countries through training, technical advice, and peer learning workshops
to help operationalize policy advice and research and to disseminate good gender budgeting practices.
Close collaboration with UN Women has led to numerous joint training courses and peer learning
workshops on gender budgeting at regional technical assistance and training centers, and with country
authorities. In addition, the IMF has provided technical assistance to individual countries on integrating
gender budgeting into public financial management institutions and implementing gender budgeting (for
example, Albania, Austria, Cambodia, Ethiopia, Niger, and Ukraine). The IMF continues to work on gender
budgeting issues as part of a broader effort to promote gender equality and inclusive growth.

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16. Policies such as subsidized childcare and paid parental leave have a positive impact on
female labor force participation, especially in advanced economies. In Norway, for instance,
the expansion of universal childcare for toddlers increased the likelihood of married or cohabiting
mothers’ employment by 32 percentage points vis-à-vis the baseline participation rate of 63 percent
(Andresen and Havnes 2019). Parental leave policies are also an important instrument for supporting
work-life balance. Blau and Kahn (2013) show that parental leave had positive effects on female
labor force participation in OECD countries. Figure 4 shows the positive correlation in a cross-
country regression of female labor force participation and the number of parental leave days
available to mothers and public spending on childcare.

17. Providing greater educational opportunities to women can boost female labor force
participation in low-income countries. Policies that support girls’ education have contributed to the
increase in female labor force participation (Heath and Jayachandran 2017); underdeveloped human
capital is a key binding constraint for women entering the labor force. Figure 4 shows a positive
correlation between female labor force participation and education spending in low-income countries.

Figure 4. The Positive Impact of Selected Fiscal Policies on Female Labor Force Participation

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A. Second Earner Taxation in AEs B. Parental Leave for Mothers in AEs

81
Female labor force participation
(percentage of women 15- 64) 85

Female labor force participation

(percentage of women 15- 64)
80
80

75

79
70

78 65
0.21 0.26 0.31 0.36 0 50 100 150 200
Tax rates on second earner (percent) Number of weeks of parental leave

C. Public Spending on Child Care in AEs D. Public Education Spending in LICs

Female labor force participation

85 75
Female labor force participation

(percentage of women 15- 64)

(percentage of women 15- 64)

83
81 70
79
65
77
75 60
73
71 55
69
50
67
65 45
0 100 200 300 400 500 600 0 2 4 6 8 10
Spending on child Care (per head, in 2010 US$) Spending on education (percent of GDP)

Sources: Organisation for Economic Co-operation and Development Statistics; World Bank, World Development Indicators; and
authors' calculations.
Note: These graphs were obtained using bin-scatter plots. These plots correspond to regressions of female labor force
participation on the variable of interest controlling for other relevant variables (for example, GDP growth, GDP per capita,
education level, time fixed effects). Parental leave represents the number of weeks of paid parental and home care leave available
to mothers. AEs=advanced economies; LICs=low-income countries.

18. Expanding access to infrastructure services also has a significant effect on easing entry
into the labor market. In South Africa, for instance, rural electrification raised female labor force
participation by about 9 percentage points and simultaneously increased the hours worked by
women already in the labor force by about 4 to 15 percent (Dinkelman 2011). Similarly, in rural India,
better access to roads and more frequent bus service have raised female labor force participation
above that of men (Lei, Desai, and Vanneman 2019). Koolwal and van de Walle (2013) show that
improved access to water is correlated with a lower burden of unpaid nonmarket work, freeing up
women’s time to participate in income-generating activities.

GENDER-RESPONSIVE FISCAL POLICIES AND THEIR

MACROECONOMIC AND DISTRIBUTIONAL IMPACTS
19. This section explores how gender-responsive fiscal policy measures affect gender
inequality, economic growth, public finances, income inequality, and poverty. Drawing on the

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work of Chade and Ventura (2002); Guner, Kaygusuz, and Ventura (2012, 2019); and Malta, Martinez,
and Tavares (2019), two overlapping generation general equilibrium models are calibrated to
replicate the prominent macro- and microeconomic characteristics of a representative advanced
economy and a low-income country. The models simulate the impact of various gender-responsive
fiscal policy interventions and analyze the channels and mechanisms through which these measures
affect labor force participation, gender wage gaps, economic growth, public finances, income
inequality, and poverty. The analysis provides insight into which policies could most effectively
achieve multiple objectives for the two groups of countries. Below, we describe the main
assumptions and features of the models, with technical details provided in the annex. This section
also provides an illustrative analysis of how the impact of these measures could change if
discriminatory social norms were reduced.

20. The advanced economy model is a life cycle model in which households make joint
consumption, labor supply, and saving decisions. Households differ in their initial education
levels and have varying costs related to the female partner in households participating in the labor
market. These costs depend on family characteristics. Female human capital is endogenously
calculated: it grows when women work, and it depreciates when they do not. Households have
children and face child care costs when women work. The government collects a progressive labor
income tax, social security contributions, and capital tax and spends on childcare and government
consumption. Household members of both sexes retire when they reach old age and receive a
pension that depends on their initial level of education.

21. In this framework, women face various challenges to achieving their full potential
throughout their lives. These include: (1) initial lower productivity (which reflects a wage
differential at the beginning of their working life); (2) the costs of taking care of the home and family
(represented by a utility cost and financial cost for families when the women work); and (3) a tax
system that penalizes the secondary earner (who is typically the female partner).

22. Similarly, the lower-income country life cycle model features heterogeneous agents
and captures key characteristics of a typical low-income country. The framework is based on
a small open economy model, with formal and informal sectors, in which the government collects
taxes on formal labor income, consumption of formal goods, and formal firms’ profits. It spends on
education, formal goods, and cash transfer programs. Families go through three phases of life: as
young adult parents, adults, and seniors. In addition to gender and generation, agents differ from
one another in initial income and skill level. Throughout their lives, families choose how much to
consume of each of the goods, how much to work in the formal and informal sectors, and how
much to save (if they have enough income to save).

23. In this framework, women face various barriers to economic empowerment

throughout their lives. These include: (1) less education;8 (2) the costs of taking care of the home
and family (represented by a utility cost for families with the female partner working); and (3) gender

8
The analysis assumes only public education.

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 WOMEN IN THE LABOR FORCE: THE ROLE OF FISCAL POLICIES

discrimination in the labor market (manifested in lower returns to experience, fewer job
opportunities, and pay gaps).

24. The models are calibrated for countries with features of typical advanced economies
and low-income countries, as discussed in the previous section, and allow for analysis of the
impact of specific gender-responsive fiscal interventions. The analysis is meant to shed light on
transmission channels that can be considered representative of the country groups. The size of the
impact of the various measures, which is country-specific and subject to model assumptions, should
be considered only for illustration purposes.

• The advanced economy model is calibrated to the United States. The United States has
subsidized childcare programs, but costs are on average higher than in other OECD countries.
Paid parental leave is provided, but it is not universal and is less than the OECD average of
18 weeks. In addition, in the United States, families may file taxes jointly or individually, which
offers a good case study for analysis of the impact of switching from joint to individual tax filing.

• The low-income country model is calibrated to Senegal. Senegal exhibits the characteristics
of a typical low-income country, including a sizable gender gap, high informal sector
employment, low levels of education, and predominance of the agricultural sector.9 In addition,
as in many other low-income countries, women in Senegal face additional penalties in the labor
market, including lower returns from experience and other “unexplained” gender pay gaps.10

9
Average years of education of the workforce are lower than for the average low-income country.
10
“Unexplained” pay gap is the portion of the wage gap that cannot be explained by observed data, such as education
differentials, location, type of work, years of experience, and so on. Unexplained wage gaps are associated with labor
market discrimination. For a thorough analysis of Senegal’s gender gaps, see Malta, Martinez, and Tavares (2019).

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WOMEN IN THE LABOR FORCE: THE ROLE OF FISCAL POLICIES

A. Gender-Responsive Fiscal Policies in Advanced Economies

25. We analyze the impact of three gender-responsive fiscal policy interventions that are
widely used to tackle gender inequality: subsidized childcare, paid maternity leave, and
individual income tax filing. Each of these policies has the potential to increase female labor force
participation and hours worked by women (see, for example, Andresen and Havnes 2019; Kalb 2018;
Bick and Fuchs-Schündeln 2017). These policies have also been recommended extensively by the
IMF (IMF 2018a), among other institutions. Depending on their design, these policies can target
different segments of the female population. For example, on a relative basis, maternity leave and
childcare costs would benefit women with little education (who face higher childcare costs as a
share of potential labor earnings) more than women with higher education (and hence income).
Changing the unit of taxation would, however, positively impact high-skilled women more—while it
would benefit all women, high-skilled women are often married to high-skilled men, which can
amplify the impact of joint taxation. These variations on which subset of women benefits more from
a given policy can, in turn, have different effects on overall productivity, growth, public finances,
inequality, and poverty. Later in this note, we draw on models to trace out these effects by
considering several policy interventions.

Subsidized Childcare

26. Our model simulations suggest that reducing the cost of childcare by half for all
middle-class working mothers of preschool children increases female labor force
participation, particularly among low-income families (Figure 5).11 These families comprise
women with high school or lower levels of education and face relatively high childcare costs in
relation to their earnings. Thus, reducing the cost of childcare for working mothers increases the
return on participating in the labor market. When women participate in the labor market, they
accumulate returns on experience, which also increases their income over their life cycle.

27. A greater pool of workers boosts economic growth and aggregate income, but has
complex implications for the incomes of different segments of the population. A larger pool of
workers reduces the average female wage as more low-skilled women (women with high school or
less than high school education) enter the labor market, thus decreasing aggregate productivity.
Overall household income increases in our model because more low-skilled women would have paid
work. The increase in the overall labor supply because of greater female labor force participation
also depresses economy-wide wage levels, including the wages of men with similar skills (due to the
general equilibrium impact on wages). This result—of a complex impact on both male and female
wages resulting from higher female labor force participation—matches the empirical findings of
Acemoglu, Autor, and Lyle (2004).

11
In the analysis, the cost of childcare per child is reduced from 10 percent of family income to 5 percent. Currently,
the United States offers a federal government program, the Child Care Development Fund (CCDF), for poor families.
The exercise in this subsection envisages that women who already benefit from CCDF would be excluded from the
extension of childcare subsidies. The cost of this intervention is estimated at 0.6 percent of GDP.

16 INTERNATIONAL MONETARY FUND

 WOMEN IN THE LABOR FORCE: THE ROLE OF FISCAL POLICIES

Figure
Figure 5. Macroeconomic
5. Macroeconomic andand Distributional Effects
Distributional EffectsofofSubsidizing
Subsidized Childcare
Childcare
Panel A. Change in Female Labor Force Panel B. Household Income
Participation by Education Level 1
0.6
8 7.3 0.5
Change in percentage points

7 6.5
0.4

Percentage change
6
4.8 0.2
5 4.4
-0.2 0.04
4
0
3
2 -0.2
1
0.0 0.0
0 -0.4
Total <HS HS SC C COL+ Net income Net income Average
gain male female household
income

Panel C. Income Gaps, Inequality, and Poverty3 Panel D. GDP and Government Accounts2
0.1 0.5 0.4
Change in percentage points

Percentage change of GDP

0.00 -0.02 -0.4 0.00 -0.02
0.0 0.4

0.3 0.3
-0.1

0.2
-0.2
0.1
-0.3
0.0
-0.4
Gini Poverty Income Top Bottom -0.1
gap decile decile GDP Fiscal balance
income income impact

Source: Authors' calculations.

Note: 1<HS (less than high school), HS (high school), SC (some college), C (college), COL+ (Post-college), Total gain (weighted average of
gains by level of education).
2Fiscal balance impact (as percentage of GDP) is calculated subtracting the fiscal costs of implementing the policy measure from the

revenue gains coming from the measure.

3Income gap =[1 - (after-tax female average income / after-tax male average income)]- [1 - (initial after-tax female income / initial after-tax

male income)].

28. This policy creates incentives (and means) for low-skilled women to enter the labor
market and generally reduces poverty. The model shows that the share of the population below
the poverty line decreases as more low-skilled women enter the labor market, increasing the
earnings of individuals at the lower level of the income distribution. This, in turn, reduces poverty,
though some individuals in the bottom decile could experience some reduction in wages without
benefiting from lower child care costs. Households at the top of the income distribution are affected
by this reform only marginally. Income inequality remains broadly stable.12

12
It should be noted that if the analysis were to assume further subsidization of childcare (for example, for families
currently eligible for CCDF), the impact on poverty and inequality could be much larger.

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WOMEN IN THE LABOR FORCE: THE ROLE OF FISCAL POLICIES

Providing Maternity Leave

29. Instituting a paid maternity leave policy of 18 weeks, which is equivalent to the OECD
average, would boost female labor force participation mostly among low-skilled women
(Figure 6).13 Low-skilled women have on average more children and face relatively higher childcare
costs (in relation to their income), especially when they do not qualify for subsidies.14 As a result,
establishing parental leave would reduce the cost of participating in the labor force, particularly for
low-skilled mothers of young children.

30. The higher level of female labor force participation boosts economic activity, but can
also have large fiscal costs. Overall household income increases in our model due to a larger pool
of human resources and the accumulation of high-skilled human capital. The policy has a slightly
negative impact on men’s wages due to the general equilibrium effects of higher female labor force
participation on wages. However, the cost of instituting leave for all women could potentially be
large (about 0.5 percent of GDP) as all new mothers, including high-skilled mothers with higher
salaries, could use this benefit.

31. Establishing parental leave increases income, in particular for the poorest women,
thereby reducing the share of the population below the poverty line. This policy improves
inclusion as it benefits women at the bottom of the income distribution who face a relatively larger
cost of child-rearing in the absence of parental leave. These results are consistent with the findings
of Rossin‐Slater, Ruhm, and Waldfogel (2013), who examined the effects of California’s paid family
leave program on labor market outcomes.

13
While we consider only the extension of maternity leave (due to modeling constraints), gender-neutral parental
leave might have even stronger benefits for women by leveling the playing field and reducing discrimination against
mothers (IMF 2018a). However, there is evidence that an excessively long period of parental leave (in particular
maternity leave) could be detrimental to female labor force participation because it leads to detachment from
the labor force (IMF 2018a; Ruhm 1998).
14In the United States, married women with less than a high school education have on average 2.8 children, while
married women with a college degree or more have on average 1.6 children. In addition, poorer families face higher
costs of childcare as a share of their total income. According to Herbst (2015), using data from the Survey of Income
and Program Participation (SIPP), families in the top quartile of the income distribution spend on average 7.8 percent
of their income on childcare, while families in the bottom quartile spend 17.4 percent.

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 WOMEN IN THE LABOR FORCE: THE ROLE OF FISCAL POLICIES

Figure 6. Macroeconomic and Distributional Effects of Paid Maternity Leave

A. Change in Female Labor Force B. Household Income
Participation by Education Level 1 0.4 0.35
5.0
5
Change in percentage points

0.2

Percentage change
4
0.04
3 0.0
1.9
2 1.6 1.4
-0.2 -0.14
1
0.0 0.0
0 -0.4
Total <HS HS SC C COL+ Net income Net income Average
gain male female household
income

C. Income Gaps, Inequality, and Poverty 3 D. GDP and Government Accounts2

1.5 0.30
Change in percentage points

Percentage change of GDP

1.2 0.25
1.2 0.25

0.9 0.20

0.6 0.15 0.13

0.3 0.10
0.0 -0.02 -0.3 0.0
0.0 0.05

-0.3 0.00
Gini Poverty Income Top Bottom GDP Fiscal balance
gap decile decile impact
income income

Source: Authors' calculations.

Note: 1<HS (less than high school), HS (high school), SC (some college), C (college), COL+ (Post-college), Total gain (weighted average of
gains by level of education).
2Fiscal balance impact (as percentage of GDP) is calculated subtracting the fiscal costs of implementing the policy measure fr om the revenue

gains coming from the measure.

3Income gap =[1 - (after-tax female average income / after-tax male average income)]- [1 - (initial after-tax female income / initial after-tax

male income)].

Changing to Individual Taxation

32. Changing the unit of taxation from the family to the individual benefits all working
women in the economy.15 This policy reduces the marginal income tax of the secondary earner,
often women, and increases the marginal income tax of the primary earner, often men. The decline in
the marginal income tax of the secondary earner increases the return of participating in the labor
force (extensive margin) and, among women who already participate, generates a large increase in

15
According to the Internal Revenue Service, fewer than 3 percent of married couples file under separate status in
the United States. This is likely because various credits and tax breaks are available only for joint filing (examples
include earned income credits, credits for adoption-related expenses, student loan interest deductions, and interest
income from qualified US savings bonds used for higher education). There are other nonnegligible costs associated
with switching from one system to the other.

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WOMEN IN THE LABOR FORCE: THE ROLE OF FISCAL POLICIES

the number of hours worked (intensive margin) (Figure 7). These results are in line with previous
studies in the literature (Guner, Kaygusuz, and Ventura 2012; Borella, De Nardi, and Yang 2019).

33. The change in the unit of taxation stimulates economic activity and increases
government revenue. More women join the labor market in our model, and women already
employed increase their working hours. Men, on the other hand, reduce the number of hours
worked somewhat due to the increase in the marginal income taxes. Overall, household income
increases as the rise in women’s earnings compensates for the fall in men’s earnings. The policy also
generates additional government revenue, with more individuals paying at higher tax brackets.
However, some married, single-earner households could be negatively affected by this measure,
depending on their income level, as the rate under the individual taxation could be higher.

Figure 7. Macroeconomic and Distributional Effects of Changing Income Taxation Filing

from Jointly to Separately
Separately

A. Change in Female Labor Force B. Household Income

Participation by Education Level 1 20 19.3
20
17.9 16
Change in percentage points

18 16.1
15.5 15.3 Percentage change
16 14.9 12
14 12.2 8
12
10 4 2.0
8 -7.3
0
6
4 -4
2 -8
0 Net income Net income Average
Total <HS HS SC C COL+ male female household
gain income

C. Income Gaps, Inequality, and Poverty3 D. GDP and Government Accounts2

8 7.0
4
Change in percentage points

Percentage change of GDP

3.4
4
-0.03 -0.04 1.0
-15.3 3
0

-4 2
1.5
-8
1
-12

-16 0
Gini Poverty Income Top Bottom GDP Fiscal balance
gap decile decile impact
income income

Source: Authors' calculations.

Note: 1<HS (less than high school), HS (high school), SC (some college), C (college), COL+ (Post-college), Total gain (weighted average of
gains by level of education).
2Fiscal balance impact (as percentage of GDP) is calculated subtracting the fiscal costs of implementing the policy measure from the revenue

gains coming from the measure.

3Income gap =[1 - (after-tax female average income / after-tax male average income)]- [1 - (initial after-tax female income / initial after-tax

male income)].

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 WOMEN IN THE LABOR FORCE: THE ROLE OF FISCAL POLICIES

34. The change in the unit of taxation reduces income inequality and poverty. Increasing
the marginal income taxes of high earners makes the tax system more progressive. At the same time,
the changes in the unit of taxation increase female labor force participation and hours worked
among women at the bottom of the income distribution, leading to a lower share of the population
below the poverty line.

B. Gender-Responsive Fiscal Policies in Low-Income Countries

35. This section examines the effects of selected gender-responsive fiscal policies in low-
income countries.16 We consider three policy experiments: (1) closing the gender gaps in years of
education between women and men at the same income level; (2) increasing spending on water
infrastructure that benefits women in particular, as they spend more time fetching water than men;17
and (3) cash transfers to poor women participating in the labor market. We first trace out the
impacts, as demonstrated by our model, of these measures on female labor force participation,
income, fiscal budgets, inequality, and poverty.

Box 2. Previous IMF Policy Work on Gender Equality Using Similar Methodology
Since 2017, the IMF has been analyzing gender issues in its country work, using in several studies a model
framework similar to the one applied in this note.1 Country examples include Argentina (2017), Iran (2018),
Nigeria (2019), and Lao P.D.R. (2019).
• Argentina (IMF 2017b): Female labor force participation has increased less than in its peer countries
in the past decades, and discrimination in the labor market persists―the average wage gap between women
and men with similar jobs, location, education and work experience is estimated at about 15 percent.
The study finds that providing cash transfers to low- and middle-income working mothers could generate
economic growth, boost government revenues and lower income inequality. In particular, the policy could
bring many middle-income women into the formal labor market, where wage gaps and gender
discrimination are lower.
• Iran (IMF 2018c): Although gender gaps in education are small, female labor force participation is
low compared with peer countries. Highly educated women outside the labor market are an untapped
source of growth and productivity. Simulations indicate that reducing discrimination in the labor market and
the gender pay gap by half could boost GDP by 26 percent and double female labor force participation.

• Lao P.D.R. (IMF 2019a): Labor force participation rates are relatively equitable between men and
women, but gender gaps persist in formal employment and in wages. Adopting policies to close the gap in
returns on experience between women and men as well as to eliminate other sources of discrimination in
the formal workplace could decrease the gender wage gap by almost 12 percentage points.

• Nigeria (IMF 2019b): Education gaps between men and women are relatively high, in particular
among the poor. Closing the education gaps for each income level would boost GDP by 5 percent, and
income inequality, as measured by the Gini coefficient, would decrease by 2 percentage points.
1/ In line with its mandate, the IMF addresses issues of gender inequality where such issues significantly impact
macroeconomic outcomes (IMF 2018b).

16
Different exercises have been performed using the same calibration (see Malta, Martinez, and Tavares 2019), which
produced robust results. The model has also been extensively applied to different countries (see Box 2).
17
Based on survey data from 45 developing economies, the World Health Organization estimates that women are
about three times more likely than men to fetch water (UN-WHO 2010). A similar pattern is also observed in Senegal.

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WOMEN IN THE LABOR FORCE: THE ROLE OF FISCAL POLICIES

Closing Gender Gaps in Education

36. Closing education gender Figure 8. Impact from Closing the Gender Education
gaps increases female labor force Gaps on Female Labor Force Participation by Quantile
participation and results in large
GDP gains. In the baseline scenario, 20 18.7

Change in percentage points

working women have 35 percent 15
fewer years of schooling on average
than men, and this gap is wider for 10 7.7
6.5
households at the bottom 50 percent 5
4.4

of the income distribution. 18

0 0
0
The exercise envisages closing the
Total gain Quantile 1 Quantile 2 Quantile 3 Quantile 4 Quantile 5
gap so that men and women at every
Source: Authors' calculations.
income level will have the same
number of years of education (differences will remain between individuals at different income
levels). Simulations of our model suggest that closing education gaps boosts female labor force
participation by almost 19 percentage points, while output grows by about 9 percent in the long
run, as a more educated female labor force increases overall labor productivity (Figures 8 and 9).
With higher skills, some low and lower-middle-income women join the labor force in our model,
while young female workers continue to work throughout their lifetimes due to the financial returns
from experience. Women with less education and experience would join the large informal sector,
while middle-income and upper-middle-income women shift more of their working time to the
formal sector, where wages are higher, and jobs are more secure.19
37. Gender wage gaps, income inequality, and poverty rates fall. Because of the rise in
female education, the gender pay gap would shrink. Despite higher competition in the labor market,
the growth in aggregate demand is enough to offset pressures on men’s wages, which decline only
marginally. Closing education gaps would also reduce poverty substantially, as poorer and less
educated women would gain relatively more years of education. This would reduce inequality,
shrinking the income gap between the top 10 percent of the income distribution and the bottom
10 percent. In the long run, this measure would bring net fiscal revenue gains, reflecting higher
collection of consumption and labor income tax revenues due to higher economic activity, which
could be channeled to finance social and development spending.20

18
The average years of education of the workforce in Senegal is calibrated at 3.8 years for men and 2.5 years for
women. There is a 41 percentage point gap in years of education for working women at the bottom 50 percent of
the income distribution compared with men, while among the top 50 percent of the distribution this gap drops to
30 percentage points.
19
Female labor force participation increases by 18 percentage points from its initial level of 39 percent, which was
calibrated in the model based on household survey data. The share of the informal labor market is calibrated at
79 percent. The data indicate that women working in the informal sector face larger gender pay gaps (after
controlling for other factors, such as education, experience, and location), suggesting that the larger the informal
sector, the lower the economic incentives for women to join the labor force.
20
Using Gaspar and others (2019) costing methodology, we estimate the cost of this policy to be about 0.4 percent
of GDP a year.

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 WOMEN IN THE LABOR FORCE: THE ROLE OF FISCAL POLICIES

Figure 9. Macroeconomic and Distributional Effects from Closing Gender Gaps in Education
Figure 9. Macro and Distributional Effects of Closing Gender Gaps in Education

A. GDP and Government Accounts1 B. Household Income

10
8.8 11.2
Percentage change of GDP 12
8 10

Percentage change
8 7.0
6
6
4 4
2
2 -0.1
0.9 0
0 -2
GDP Fiscal balance impact Male wage Female wage Average
household
income

Panel D. Change in Household Income

C. Wage Gap, Inequality, and Poverty D. Change in Household Income
0 60
Change in percentage points

-5 -2.8 50

Percentage change
-10 -7.7 40
-11.0
-15
30
-20
20
-25
10
-30 -27.6
Wage gap Gini Top10-to- Poverty 0
bottom10 1 2 3 4 5 6 7 8 9 10
income ratio
Deciles of income distribution
Source: Authors' calculations.
1Fiscal balance impact (as percentage of GDP) is calculated subtracting the fiscal costs of implementing the policy measure from the revenue

gains coming from the measure.

Promoting Infrastructure Figure 10. Impact of Better Infrastructure for Safe

Water on Female Labor Force Participation by
38. Investing in infrastructure for Quantile
safe water would free up women’s
10
time to participate in the labor force, 9.1
Change in percentage points

leading to better overall economic 8

6.1
outcomes (Figure 10). Household 6

survey data suggest that in many low- 4 3.0

income countries, including Senegal, 2

most households spend considerable 0
0 0 0
time fetching water, though poor Total gain Quantile 1 Quantile 2 Quantile 3 Quantile 4 Quantile 5

women spend more time than both Source: Authors' calculations.

richer women and men.21 If the daily

Note: Women in the second quintile do not enter the labor force because they
hours men and women spend fetching
have lower marginal returns (financial incentives) of working. While women in the
water were instead used for paid work first quantile enter the labor force because they are poorer, some skilled women in
opportunities, productivity would the third quantile join the labor market as their return to entering the labor market
increases.
increase substantially. Higher

21
Household survey data show that women spend on average 1.9 hours a day fetching water (while men report
spending on average 1.5 hours a day), and that poorer households tend to spend more time than richer households
fetching water.

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WOMEN IN THE LABOR FORCE: THE ROLE OF FISCAL POLICIES

productivity and labor force participation, in turn, generate a virtuous cycle of higher supply and
demand for goods and services, which, in the long run, boosts economic growth and fiscal
revenues (Figure 11).22 Furthermore, this measure would benefit households at all income levels
of the distribution.

Figure 11. Macroeconomic and Distributional Effects from Investing in Infrastructure for
Safe Water

A. GDP and Government Accounts1 B. Household Income

14 13.2 15 14.6
13.6
Percentage change of GDP

12
12

Percentage change
10 9.6
8 9

6
6
4
1.3 3
2

0 0
GDP Fiscal balance impact Male wage Female wage Average
household
income

C. Wage Gap, Inequality, and Poverty D. Change in Household Income

0 60
Change in percentage points

-5 -3.1 -1.5
50
Percentage change

-4.3
-10
40
-15
30
-20
-25 20

-30 10
-30.2
-35
0
Wage gap Gini Top10-to- Poverty
1 2 3 4 5 6 7 8 9 10
bottom10
income Deciles of income distribution
ratio
Source: Authors' calculations.
1Fiscal balance impact (as percentage of GDP) is calculated subtracting the fiscal costs of implementing the policy measure from the revenue

gains coming from the measure.

39. Greater access to safe water reduces gender gaps, poverty, and inequality. Both men Change in Female L
and women see their wages grow, with the gender wage gap shrinking, as women’s productivity
grows disproportionately more than men’s. The entire population, particularly poor women and
families, who spend more time fetching water, benefits economically from greater access to safe
water, reducing both poverty and inequality.

22
Using Gaspar and others (2019) costing methodology, the cost associated with this measure is estimated at
0.74 percent of GDP.

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 WOMEN IN THE LABOR FORCE: THE ROLE OF FISCAL POLICIES

Instituting Cash Transfers

Figure 12. Impact of Cash Transfers on Female Labor Force
40. Cash transfers to poor Participation by Quantile
women in the labor force
25
boost female labor force 21.9

Change in percentage points

20
participation, but the increase
in productivity is limited. Cash 15 13.0
transfer programs have become 10 8.9
an important instrument for
5
social safety nets around the 0 0 0
0
world―about two-thirds of Sources: IMF staff estimates.
Total gain Quantile 1 Quantile 2 Quantile 3 Quantile 4 Quantile 5
countries have either
Source: Authors' calculations.
conditional and/or
unconditional cash transfer programs (World Bank 2017). Providing cash transfers to all poor women
participating in the labor market (either formal or informal) increases female labor force

Figure 13. Macroeconomic and Distributional Effects of Cash Transfers to Poor Women
the Laborin
Who Participate Market
the Labor Market
A. GDP and Government Accounts1 B. Household Income
4 4 3.8
3.4
Percentage change of GDP

3 3
Percentage change

2 2

1 0.6
1
-0.1
-0.5 0
0

-1
-1 Male wage Female wage Average
GDP Fiscal balance impact household
income

C. Wage Gap, Inequality, and Poverty D. Change in Household Income

0 120
Change in percentage points

-0.4
-11 -4.5
100
Percentage change

-22 -16.3 80

-33 60

-44 40

20
-55 -51.8
Wage gap Gini Top10-to- Poverty 0
bottom10
1 2 3 4 5 6 7 8 9 10
income ratio -20
Deciles of income distribution
Source: Authors' calculations.
1Fiscal balance impact (as percentage of GDP) is calculated subtracting the fiscal costs of implementing the policy measure from the

revenue gains coming from the measure.

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WOMEN IN THE LABOR FORCE: THE ROLE OF FISCAL POLICIES

participation and boosts output in the model, though it reduces average productivity per worker, as
many of these women are less educated and have lower skills (Figures 12 and 13).23 Higher GDP is
driven primarily by higher labor force participation,24 while average women’s wages are affected not
only by the low-skilled female entrants (which drives average wages down), but also by the
introduction of middle-income women into the formal labor market as a result of higher economic
activity (pushing women’s average wages up). These different forces rebalance wages, with an
increase in female wages and a slight reduction in male wages, which results in higher average
household income. Government revenues increase only marginally; these women would mostly join
the informal labor market and not pay income taxes, and many goods in this economy are not
subject to consumption taxes since they are produced in informal markets.

41. Overall, the cash transfer program reduces income inequality and poverty. Because this
measure directly targets the poorest portion of the population, it reduces poverty and income
inequality both in the short and long term.25

C. Addressing Social Norms

42. Gender-biased social norms are still important barriers to women’s economic
empowerment across the globe. The OECD (2019) estimates that discriminatory laws and social
norms and practices induce a loss of 8 percent in global investment, reduce women’s average years
of schooling by 16 percent, and decrease labor force participation by 12 percent, resulting in a
global income loss of 7.5 percent. Furthermore, the OECD finds that while progress has been made
in reducing discriminatory social norms and introducing legal reforms as measured by a
multidimensional index,26 no country is immune from discrimination.

43. Reducing gender-biased social norms magnifies all positive effects of gender-
responsive fiscal policies. For illustrative purposes, we model the reduction in social bias against
women as an exogenous reduction in the utility cost of females participating in the labor market in
low-income countries. We find that the GDP gains estimated above can increase further by up to
5 percent, depending on the particular policy intervention. The reduction of gender-biased social
norms further reduces poverty and inequality because easier entry into the labor market is more
beneficial to poor and lower-skilled women.

23
We assume an extension of the current cash transfer program in Senegal to all working women below the poverty
line (38 percent of the population). Based on the current cash transfer values, the cost of the program is estimated at
1 percent of GDP.
24
Note that the model does not allow for unemployment and assumes that all women looking for a job would find one.
25
The model-based analysis captures only long-term effects. That said, because cash transfers would immediately
increase the disposable income of poor women, the measure is expected to have an impact on poverty and
inequality in the short run, too.
26
The Social Institutions and Gender Index (SIGI) measures gender discriminatory social institutions: formal and
informal laws, social norms, and access to empowerment opportunities and resources (OECD 2019).

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44. Countries have introduced a variety of measures aimed at reducing social biases
against women. For example, the Gender Roles, Equality, and Transformations (GREAT) program in
Uganda included a radio drama discussing gender equality issues, resulting in increased gender
equitable values among participants (Institute for Reproductive Health 2016). More than
34 countries have implemented the Promundo’s Program H that aims to engage men and boys on
gender norms and participants report that they are more likely to help with unpaid domestic work
(Promundo 2017). Unterhofer and Wrohlich (2017) find that introducing a quota on parental leave in
Germany, which led to the share of fathers taking at least two months of paid leave increasing more
than 30 percentage points in just ten years, had a positive impact on social attitudes towards gender
equality. In Saudi Arabia, Bursztyn, Gonzalez, and Yanagizawa-Drott (2018) found that men were
more likely to support their wives working after participating in peer-learning sessions.

POLICY LESSONS
45. Given the high returns from many of the gender-responsive fiscal policy interventions,
analyzing the impact of gender-responsive fiscal policy interventions should be an early
consideration for policymakers. It is imperative to analyze the macroeconomic and distributional
impacts of gender-responsive fiscal policies so that policymakers can adopt the most effective and
sustainable measures to support gender equality while boosting economic growth and reducing
income inequality and poverty.

46. The selected fiscal policy interventions considered in this note provide incentives and
create conditions for women to work while also boosting growth and reducing poverty and
inequality. The transmission channels and impacts of the various policy measures depend to a great
extent on each country’s features, such as the size of the informal sector, education levels and the
education gaps between men and women, and the degree of existing gender discrimination due to
social norms. Some measures have an important impact on productivity and, in turn, on economic
growth. However, most of these measures take time to bear fruit. Measures such as cash transfers
that target low-skilled and poor women may have a particularly relevant impact on reducing poverty
and inequality and may potentially be more effective in the short term. In particular:

• In advanced economies, changing the unit of taxation has a potentially high long-term return on
female labor force participation for all women, growth, and inequality at zero cost (making the
tax system more progressive). However, it may have a negative impact on households with only
one working individual in a married couple (changing the unit of taxation would increase the
effective taxes on earnings for this type of household), depending on the design of the tax
system in terms of tax rates, income brackets, and deductions.

• Subsidizing child care and paid maternity leave in advanced economies also boosts female labor
force participation, but the impact would be more concentrated among low-skilled women. Paid
maternity leave could be an expensive undertaking if granted to all women who work.

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• Higher spending on education and infrastructure with higher return for women, such as for safe
water, would increase labor productivity and, in turn, sustainable growth—with a positive impact
on government coffers in low-income countries. Investing in education would be a highly
effective policy from both a macroeconomic and social perspective. It would boost women’s
human capital and, in turn, shape future total labor productivity.

• Providing cash transfers to poor (low-skilled) women in the labor force in low-income countries
could have an immediate positive impact on poverty and inequality. It would not substantially
raise worker productivity but would still increase output since more women would enter the
labor market.

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Annex I. Modeling Framework

A. Model for Advanced Economies

Environment

We study a stationary overlapping generations economy populated by a continuum of married

males (𝑚) and females (𝑓). Let 𝑗 𝜖 {1,2, . . . , 𝐽} denote the age of each individual. We assume that the
population grows at rate 𝑛 and that the population structure is stationary.

In the model, individuals are endowed with a given level of education and start their adult life
married. They retire at age 𝐽𝑟 and collect pension benefits until they die at age 𝐽. We assume for
simplicity that agents are married to individuals of the same age. Married individuals differ in their
education and number of children, and the latter is a function of the couple’s education. Children
appear in the beginning of parents’ lifetime and stay with them for three periods.

Each period, working households make labor supply, consumption, and saving decisions.
Households cannot borrow but can save. If a woman with children works, the household pays for
childcare. Households differ according to the childcare costs, which in turn depend on the
household education level and the children’s age. Childcare costs are mitigated by childcare
transfers that depend on households’ total income. In addition, if the female member of the
household works, the household incurs a utility cost related to the female labor force participation
that is not captured in the model, such as support of relatives, heterogeneity in the preferences of
educating her own children, and availability of childcare. Females who decide not to work incur
labor efficiency costs in the next period due to loss of experience.

The government taxes households and provides transfers. Child-related transfers include childcare
subsidies, child tax credits, and childcare tax credits. The government also administers the earned
income tax credit (EITC), which works as a wage subsidy for households below a certain income and
as a means-tested welfare system, providing transfers for low-income households.

Technology

There is an aggregate firm that operates constant returns to scale technology. The firm rents capital
and labor services from households at rates 𝑅 and 𝑤. Using 𝐾 units of capital and 𝐿 units of labor,
the firm produces 𝐹(𝐾, 𝐿) = 𝐾 𝛼 𝐿1−𝛼 units of consumption goods. Capital depreciates at rate 𝛿.

Childcare services are provided using labor services only in a linear way. Thus, the price of childcare
services is wage rate 𝑤. Total labor services available are divided between childcare services and the
production of goods. Households save in the form of a risk-free asset that pays the competitive rate
of return 𝑟 = 𝑅 − 𝛿.

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Demographics

Individuals differ in terms of their labor efficiency at the beginning of their lives; each individual is
endowed with an exogenous type 𝑧 for males and 𝑥 for females. Males' productivity at age 𝑗 and
type 𝑧 is denoted by ℎ𝑚 (𝑧, 𝑗) . As opposed to males’, females' productivity evolves endogenously.
Each female starts her life with productivity that depends on her education level, denoted by
ℎ𝑓 (𝑥, 1). After age 1 her productivity level ℎ𝑓’ depends on her past level of productivity ℎ𝑓, age j,
education level x, and labor supply 𝑙𝑓 and is given by

ℎ𝑓′ = 𝑒𝑥𝑝 (ℎ𝑓 + 𝛼(𝑥, 𝑗)І (𝑙𝑓 > 0)– 𝛿(𝑥, 𝑗) (1 − І (𝑙𝑓 > 0)))

in which 𝛼(𝑥, 𝑗) is the female’s productivity growth rate associated with her work experience, 𝛿(𝑥, 𝑗) is
her productivity depreciation rate for not working, and I is an indicator function that is equal to 1 when
the woman works and zero otherwise. The growth and depreciation rates depend on her education,
which captures the difference in age-earning profiles of females with different levels of education.

Preferences, Children, and Childcare Costs

If a female works, the household must pay childcare costs. The cost depends on the husband's and
wife's education, the age of the children, and the number of children. The childcare cost is paid as a
fraction of household income and is denoted by θ.

At the start of their lives, married households draw a utility cost q that represents the cost of joint
market work. Following Guner, Kaygusuz, and Ventura (2012), we assume that the initial utility cost
depends on the husband's education. The momentary utility function for a married household is
then given by

𝜒
𝑢(𝑐, 𝑙𝑚 , 𝑙𝑓 , 𝑞) = 2 𝑙𝑜𝑔(𝑐) − 𝜑 (𝑙𝑚 )𝜒 − 𝜑 (𝑙𝑓 ) − 𝑞 (𝐼 {1}(𝑙𝑓 > 0))

in which 𝑐 is consumption, 𝑙𝑓 and 𝑙𝑚 are the time devoted to market work, φ is the parameter for the
disutility of work, χ is the intertemporal elasticity of labor supply, and q is the utility cost incurred by
the family when the female works (𝑙𝑓 > 0).

Government

The government collects various taxes: value-added taxes 𝜏𝑐 and progressive labor income 𝜏𝑖 (⋅) and
capital income taxes 𝜏𝑘 and uses tax collection to pay for government consumption, tax credits,
transfers, and childcare subsidies. It also collects payroll taxes 𝜏𝑠𝑠 and pays social security benefits.

Income, Taxation, and Social Security

Income for tax purposes is defined as total labor and capital income, which is equal to

𝐼 = 𝑟𝑎 + 𝑤 (𝑙𝑚 ℎ𝑚 (𝑧, 𝑗) + 𝑙𝑓 ℎ𝑓 (𝑥, 𝑗)).

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We assume that social security benefits are not taxed and that retired households’ income for tax
purpose is just 𝑟𝑎. The total tax income liability depends on the presence of children in the
household and is represented by 𝜏𝑖 (𝐼, 𝑘). These functions are continuous in I, increasing, and convex.
Each household can also receive the EITC, which is a fully refunded tax credit that works as a wage
subsidy for low-income households. We assume that the social security system balances its budget
every period.

Retired households have access to social security benefits. We assume that social security benefits
depend on agents' education type; that is, more educated agents receive larger social security
benefits. This allows us to capture in a parsimonious way the positive relationship between lifetime
earnings and social security benefits. Households receive childcare subsidies to cover a share of
childcare costs when their total income is below 𝐼𝑑 and the wife works.

Decision Problem

Households maximize the sum of the utilities of husband and wife. Consumption is a public good.
Let 𝑠 = (𝑧, 𝑥, 𝑞) be the exogenous state for married couples. Couples maximize household utility by
choosing consumption, labor supply, and saving according to the following:

𝑉(𝑎, ℎ, 𝑠, 𝑗) = max 𝑢(𝑐, 𝑙𝑚 , 𝑙𝑓 , 𝑞) + 𝛽 𝑉(𝑎′, ℎ′, 𝑠, 𝑗 + 1)

{𝑎′,𝑙𝑓 ,𝑙𝑚 }

subject to

(1 + 𝜏𝑐 )𝑐 + 𝑎′ = (𝑤 𝑙𝑚 ℎ𝑚 + 𝑤 ℎ𝑓 𝑙𝑓 + 𝑟𝑎)(1 − 𝜏𝑖 (𝐼) − 𝜏𝑠𝑠 − 𝜃(𝑗)𝑘(𝑠, 𝑗)(𝑙𝑓

> 0) ) + 𝑎(1 + 𝑟(1 − 𝜏𝑘 ))

in which 𝑙𝑚 , 𝑙𝑓 > 0 and 𝐼 = 𝑤 ℎ𝑚 𝑙𝑚 + 𝑤 ℎ𝑓 𝑙𝑓 + 𝑟𝑎.

Equilibrium

The stationary equilibrium of this economy consists of a stationary distribution of types over assets
and human capital space, policy functions, and value functions such that given prices and
government policies, they satisfy households’ maximization problems, government budget
constraints, distribution’s law of motion, and labor and capital market clearing conditions.

Calibration

The model is calibrated to match data from the US 2018 Current Population Survey. A large share of
the parameters is calibrated jointly, in equilibrium, allowing the model to match the moments from
US aggregated and disaggregated characteristics in 2018. The US tax code is calibrated using the
Organisation for Economic Co-operation and Development tax base. Table A1 reports the results for
the parameters calibrated endogenously, and Table A2 and Table A3 reports some exogenous
parameterization values. Some of the parameters calibrated draw on Guner, Kaygusuz, and Ventura
(2019) and Hannusch (2019) as their main source.

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Table A1. Parameters Calibrated Endogenously

Targeted Statistic Model Data
Average hours worked 0.40 0.40
FLFP females with less than high school education 0.42 0.46

FLFP females with high school education 0.68 0.69

FLFP females with some college education 0.74 0.74
FLFP females with college education 0.75 0.75
FLFP females with more than college education 0.83 0.82
Capital-output ratio 2.93 2.93
Source: Guner, Kaygusuz, and Ventura (2019).
Note: FLFP = female labor force participation.

Table A2. Parameters (Exogenously input)

Value Found in Data and
Statistics
Added to the Model
Model period 5 years
Population growth (n) 0.01
Elasticity of labor supply (𝜒) 3.5
Discount factor (𝛽) 0.96
Capital share (𝛼) 0.343

Depreciation of capital (𝛿) 0.055

Capital taxes ( 𝜏𝑘 ) 0.236
Value-added taxes (𝜏𝑐 ) 0.075
Labor income tax function 𝜏𝑖 (𝐼) = 𝑎 + 𝑏(/𝐴𝑊) + 𝑐( 𝐼/𝐴𝑊)𝑑 27
-085, -0.15, 1.00, 0.38
Social security contribution (𝜏𝑠𝑠 ) 20
Childcare subsidy 0.25
Childcare cost, early education 0.10
Childcare cost 0.07
Source: Guner, Kaygusuz, and Ventura (2019).

Table A3. Demographics

>HS HS SC COL +COL
>HS 5.77 2.35 2.65 0.047 0.12
HS 0.19 7.21 7.80 2.31 0.70
SC 1.49 5.34 16.85 6.82 2.38
COL 0.29 1.27 5.41 11.18 4.83
+COL 0.06 0.36 1.54 5.01 5.87
Source: Guner, Kaygusuz, and Ventura (2019).
Note: <HS (less than high school), HS (high school), SC (some college), C (college), COL + (post-college), Total gain
(weighted average of gains by level of education).

27
In which AW is the average income in the economy.

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B. Model for Low-Income Countries

A detailed description of the model is provided by Malta, Martinez, and Tavares (2019). Its main
features are described below.

• It is an overlapping generations model in which various families live in a small open economy for
three periods and die at the end of the third period. Individuals initially differ from each other by
generation, gender, endowment, and access to the saving market. Only individuals with higher
initial endowments save and borrow. In the first period, a household comprises a husband and
wife and two children. In periods two and three, the children have left to form their own
households, and the original household comprises only the husband and the wife.

• The husband and wife make decisions together. They determine the husband’s labor supply in
the formal and/or informal sector and the woman’s labor force participation and, in the case of
participation, how much time she will spend in the formal and informal sectors. There is no
unemployment in the model; all individuals participating in the labor force are employed. They
also decide how much to consume of each of the two types of goods in the economy (formal
versus informal goods). Richer couples also decide how much to save and borrow.

• Education for children and adolescents is provided by the government, and the amount of
education is not equal across gender and initial endowments, reflecting heterogeneity in the
data. Whenever women supply labor there is a utility cost incurred by the family. This cost
relates to the difficulty in coordinating multiple household activities, such as home production,
child and elderly care, and other unpaid work. For some countries, this cost can also be
interpreted as social and cultural barriers to a woman working outside the home.

• Production in the formal sector uses capital and labor, while the informal sector uses only labor.
The formal sector in this economy is modeled as a representative firm that hires both male and
female effective hours of labor and rents capital at rate r* from rich households or from abroad
to produce formal goods. Besides being produced domestically, formal goods can be imported
from abroad. Formal goods can be used as consumption goods, capital, or education.

• The model also captures discrimination that women face in the workplace in both the formal
and informal sectors. This discrimination constrains women’s ability to achieve their full salary,
productivity, and career potential.

• The government collects taxes on labor income, consumption, and firms’ profits and spends on
education, formal goods, and cash transfers. The government has access to external financial
markets and can finance its debt by borrowing at interest rate r* from abroad or from domestic
households with access to the financial sector.

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Calibration

The model is calibrated to match data from Senegal’s 2011 Household Survey and aggregate data
from that same year. Almost half of the parameters are calibrated jointly, in equilibrium, so that the
model matches the moments from Senegal’s aggregated and disaggregated characteristics in 2011.
Table A4 reports the results for the parameters calibrated endogenously, and Table A5 reports some
exogenous parameterization values.

Table A4. Parameters Calibrated Endogenously

Targeted Statistic Model Data

Female-to-male employment ratio 0.60 0.60

Gini coefficient (income) 0.63 0.63

Share of formal labor force 0.21 0.14

Female-to-male per hour wage in the formal sector 0.74 0.74

Female-to-male per hour wage in the informal sector 0.64 0.64

Government revenues on corporate taxes (as percent of

1.45 1.45
GDP)

Government expenditure on education as percent of GDP 6.1 6.1

Government expenditure on formal goods as percent of

5.2 5.2
GDP

Size of formal sector (as percent of GDP) 55 55

Source: Female-to-male employment ratio, Gini coefficient (income), Share of formal labor force, Female-to-male per
hour wage in the formal and in the informal sector are authors’ calculations using Senegal’s 2011 Household Survey.
The remaining parameters’ sources are World Bank, IMF and Unesco.

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Table A5. Parameters (Exogenously input)

Value Found in Data and Added
Statistics
to the Model

Number of years in each household period 18

Returns from experience when shifting from young adult to adult (18 years)
0.34
– males

Returns from experience when shifting from young adult to adult (18 years)
0.16
– females

Returns from experience when shifting from adult to elderly (18 years) –
0.09
males

Returns from experience when shifting from adult to elderly (18 years) –
0.07
females

Consumption tax rate on formal goods 0.18

Returns on education 0.34

Percentage of savers 20

Share of consumption in informal goods 0.45

Share of consumption in formal goods 0.55

Source: Authors’ calculations using Senegal’s 2011 Household Survey and Iberglobal.

C. Comparing the Models for Advanced Economies and for Low-Income

Countries

Both advanced economy and low-income country models are overlapping generations
macroeconomic general equilibrium models that capture gender inequalities in their micro-
foundation. The main differences between the two frameworks are summarized as in Table A6.

• The framework for low-income countries replicates households’ income distribution through an
initial endowment shock, while the framework for advanced economies bases its distribution on
different education levels.

• The low-income country framework contains two sectors, producing one good each—the formal
and the informal, while the advanced economy framework has only one good being produced in
only one sector in the economy.

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• In the low-income country framework all men work; women may or may not work. In addition,
all workers work full-time—as seen in the data (full-time work is defined as more than 30 hours
a week). In the advanced economy framework, men’s and women’s labor supply decisions are
made endogenously and are not imposed.

• In both frameworks there is human capital accumulation, but only the advanced economy
framework features human capital depreciation when a person temporarily stops working.

• Both frameworks feature utility cost for families when a woman decides to work and different
education levels for men and women. In the low-income country framework there is also gender
discrimination in the labor market; in the advanced economy framework, families face the
financial cost of childcare.

• The low-income country model is calibrated to reflect lower education levels and higher
inequality and poverty than the advanced economy model.

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Table A6. Main Differences between the Analytical Models for Low-Income Countries and
Advanced Economies

Framework for LICs Framework for AEs

Framework based on income levels Framework based on education levels

2 sectors, 2 goods: formal and informal Only 1 sector and 1 good

Everyone who works work full time Men and Women have an endogenous labor
(> 30 hours per week) supply
Working women accumulate skills but human Working women accumulated skill and not
capital does not depreciate while out of labor working led to a depreciation of females human
market capital

Men always work Men also face disutility of labor: might not work

Women face gender discrimination in the labor Working women face cost of childcare and utility
market cost of working

Calibration
Low education More educated workers
More inequalities Less inequalities – Progressive Tax System
More poverty Less poverty

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