How does the tax and benefit system impact female labor force incentives? Cross-country comparison of Belgium, Denmark, Finland, Germany and the Netherlands

Abstract

This master thesis examines incentives women have to participate in the labor market induced by the tax and benefit systems in Belgium, Denmark, Finland, Germany and the Netherlands. The purpose of this thesis is to give insights about the incentives and disincentives of female labor force participation. It also gives an overview of tax theory, the unit of taxation and the direct and indirect tax biases linked to gender. Average tax rates and participation tax rates are computed for a broad set of situations where the first and second earners are at different percentage of the average wage, with and without children and for different employment status. Average tax rates show a significant large financial disincentive for second earners compared to singles in Germany due to joint taxation. Second earners face higher average tax rates compared to singles in each country when there are children in the household. For the participation tax rates, there is a higher participation disincentive in four of the analyzed countries when switching from unemployment to part-time employment than when switching to full-time employment. Since women are more likely to work part-time, they are more impacted by this high participation disincentive.