Taxes, subsidies and gender gaps in hours and wages

Abstract Using microdata from 17 OECD countries, this paper documents a negative cross‐country correlation between gender gaps in market hours and wages. We find that the cross‐country differences in market hours are mostly accounted for by female market hours and the size of the sector that produces close substitutes to home production. We quantify the role played by taxes and family care subsidies on the two gender gaps in a multi‐sector model with home production. Higher taxes and lower subsidies reduce the marketization of home production, leading to lower market hours. The effect is largely on women because both home production and the production of its market substitutes are female‐intensive. The larger fall in female market hours reduces relative female labour supply, contributing to a higher female to male wage ratio.