Working Wives and Taxes

Higher tax rates explain differences in how much married men and women work.
Working Wives and Taxes
COULD TAX RATES EXPLAIN differences in how much married men and women work? Yes, according to Alex Bick, an economics professor at Arizona State University’s W.P. Carey School of Business in Tempe, and Nicola Fuchs-Schündeln, chair of macroeconomics and development at Goethe University Frankfurt in Germany. They took as their starting point research from ASU’s Edward Prescott showing that Europeans work less than Americans because higher taxes dull the incentive to work.

In a working paper, the researchers find that that married men across Europe work about the same number of hours. But they work fewer hours than married men in the U.S., partly because the tax rate in the U.S. is low, around 21 percent, while in Sweden and Germany it averages 33 percent.

However, they found that married women in Eastern Europe and Scandinavia work many more hours than married women in western and southern Europe—almost as many hours as married American women. They blame the differences in tax codes—in particular, the progressivity of the tax code, or how fast the tax rate increases with every additional dollar earned; and the way tax codes are applied to married couples. (They posit that the secondary earners in married couples are most often women.)

In the U.S., for example, tax rates are low and married couples are taxed jointly. When household income rises, the tax rate is still low enough to encourage secondary earners to work more hours.

In Sweden, taxes are higher, but couples are taxed separately, which means that a woman earning less than her husband would be taxed at a lower rate. This gives her an incentive to work more hours.

In Germany, the tax rate is high and married couples are taxed jointly, so additional income earned by the secondary spouse is taxed at the same rate. Married women in Germany work about 34 percent less than those in Sweden, likely because the tax code is a disincentive for them to work.

Bick suggests that policymakers could incentivize secondary earners to work more hours by changing tax codes. “If a country like Germany wanted to increase the numbers of hours worked by married women,” Bick says, “a good policy to consider would be changing the tax treatment of married couples so that their incomes are taxed separately.”