Gendering Fiscal Policy

/ / Research, Rethinking Macroeconomics, Uncategorized

The importance of public physical infrastructure in stimulating productivity and economic performance is embraced by most economists. However, there is less awareness that public spending in health, social care, education, and childcare should be considered as investment in social infrastructure. We therefore develop a feminist post-Keynesian/post-Kaleckian demand-led growth model to elucidate the impact of gender equality and public spending in these social sectors within a theoretical framework. In particular, we use the model to analyse the effects of fiscal policies and decreasing the gender wage-gaps on GDP, productivity (GDP per employee), and employment of men and women in both the short run and long run.

Our analysis challenges conventional thinking about the impact of public spending in health, social care, education, and childcare. Day-to-day spending in these sectors (e.g. wages of teachers, nurses, or social care workers) is considered as “current spending” rather than as investment in our national accounts. However, public spending in these social sectors have long-term benefits to society, yielding substantial productivity impacts in all other sectors of the economy by increasing people’s skills, health, and innovative capacities.

Crucially, these social sectors improve gender equality and reverse one of the most persistent dimensions of inequality in our societies; they provide crucial services which are otherwise provided by the unpaid invisible domestic labour of women. Public supply of these services helps women to participate in social and economic life more equally. This in turn further increases productivity by unleashing the hidden potential of women. Moreover, in the current gendered, occupationally segregated labour markets, these sectors employ predominantly women. More public social spending consequently leads to closing the gender-gap in employment. As a result, these expenditures are labelled as “purple public investment” by feminist economists (İlkkaracan, 2013).

Recognizing the vast amount and importance of time women spend on unpaid care at the household, which is not accounted for in the standard national accounts and measures such as GDP, is crucial for designing policies to increase gender equality. A fiscal policy stance, which aims to publicly provide the necessary social services, would socialize part of these activities and radically decrease the amount of unpaid private care. For instance. universal free childcare and nurseries open for sufficiently long hours benefit both mothers and fathers by giving them an equal chance to balance work with other social, cultural, and political aspects of their lives. Meanwhile, provision of these resources also benefits society at large by decreasing inequality between children from different backgrounds and improving the creative capacity of children.  Of course, there always will be the need and desire for care provided by family members for children or the elderly in the domestic private sphere. Nevertheless, regulations such as parental leave for both mothers and fathers in addition to working time arrangements that facilitate combining care and work for both men and women should help to ensure that time for caring can be equally shared between men and women.

What, then, does this imply for fiscal policy and the setting of the budget deficit or public debt targets? Fiscal policy should be focused on the needs and well-being of society rather than aiming at a singular target for the sake of the deficit. The mainstream approach of limiting the governments’ fiscal space is based on a mistaken household analogy that the public sector should balance its budget just like any household has narrowed down the political space. Within this narrow space, the idea of a fiscal credibility rule suggests that spending on public investment can be funded by borrowing, while day-to-day spending is financed by tax revenues. Even under this limited fiscal space, the idea of defining public spending in universal health, social care, education, and childcare as investment in valuable social infrastructure would extend the scope so that fiscal policy could be financed by borrowing as well as by raising tax revenues. Furthermore, mainstream policies consider even public spending financed by increased taxation of income, wealth, and corporate profits as undesirable based on the myth that it would lead to low private investment and productivity in the long term. But this assessment is rather static as it totally ignores the positive impact of these policies on macroeconomic demand, and in turn on productivity and private investment.

Our macroeconomic model can form the basis for the empirical analysis of gender equality and fiscal policy on growth, productivity, and budget balance while also serving as a tool for policy analysis and gender-responsive budgeting. In particular, the model allows policy makers to analyse the impact of fiscal policy-based employment increases in health, social care, education, and childcare along with an upward convergence in wages in these public sector jobs with closing gender pay gaps. The model also anticipates public investment in social infrastructure to reduce women’s unpaid domestic care work, while increasing their labour supply and enabling them to spend more time in paid work. Aggregate demand is expected to be stimulated both in the short- and long-run via strong multiplier and productivity effects of public investment in social infrastructure. Higher employment and closing of the gender pay gaps via higher wages for women in the public social infrastructure sector is also expected to stimulate household consumption with positive demand effects for the economy. In the long run, government spending as well as higher wages of women are expected to increase productivity. Both the demand effects in the short-run and the long-term productivity effects, which further increase profitability, are expected to stimulate private investment as well.

Given the labour-intensive and domestic demand-oriented nature of social infrastructure and occupational segregation, such investment is expected to lead to very strong increases in the employment rates of women as well as to the creation of a substantial amount of jobs for men in all sectors of the economy due to spill-over effects of demand from the social sector to the rest of the economy. This policy thereby also contributes to closing the gender gaps in employment. Due to sectoral and occupational segregation, public spending in social infrastructure is expected to create more employment for women compared to physical infrastructure. According to empirical research based on input-output tables (Antonopoulos et al., 2010; İlkkaracan et al., 2015; De Henau et al., 2016; İlkkaracan and Kim, 2018), public investment in physical infrastructure creates fewer jobs in total, and most new jobs are predominantly male jobs. However, this research does not consider the long term effects on productivity. An empirical analysis of our model for a specific economy can further shed light on the gendered policy implications.

The expansionary effects of fiscal policy lead to higher tax revenues in the economy; hence, fiscal policy partially finances itself. The model can be used to simulate further policy-mix scenarios including increases in tax rates on capital or labour to ensure that public social infrastructure investment and closing gender gaps in these sectors can fully be financed.   Progressive taxation, which improves after-tax equality in terms of income and gender, is also important in the context of public spending on non means-tested services such as universal health and social care, education and childcare. A higher tax rate on higher incomes is a way of those who can afford contributing more towards universally provided public services.

 

References

Antonopoulos, R., K. Kim, T. Masterson and A. Zacharias (2010) ‘Investing in Care: A Strategy for Effective and Equitable Job Creation.’ Working Paper No.610. Levy Economics Institute

De Henau, J., Himmelweit, S. Łapniewska, Z. and Perrons, D., (2016) Investing in the Care Economy: A gender analysis of employment stimulus in seven OECD countries. Report by the UK Women’s Budget Group for the International Trade Union Confederation, Brussels. https://wbg.org.uk/wp-content/uploads/2016/11/De_Henau_Perrons_WBG_CareEconomy_ITUC_briefing_final.pdf

İlkkaracan, İ., 2013 ‘The Purple Economy: A Call for a New Economic Order Beyond the Green’, in U. Röhr and C. van Heemstra (eds), Sustainable Economy and Green Growth: Who Cares? LIFE e.V./German Federal Ministry for the Environment,  32–7.

İlkkaracan, İ., and Kim, K. 2019. The employment generation impact of meeting SDG targets in early childhood care, education, health and long-term care in 45 countries, Geneva, ILO, forthcoming

İlkkaracan, İ., Kim, K. and Kaya, T. (2015). The Impact of Public Investment in Social Care Services on Employment, Gender Equality, and Poverty: The Turkish Case. Research Project Report, Istanbul Technical University Women’s Studies Center in Science, Engineering and Technology and the Levy Economics Institute, in partnership with ILO and UNDP Turkey, and the UNDP and UN Women Regional Offices for Europe and Central Asia

 

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