As the rate of marital dissolution has risen, women have become more aware of their vulnerability if they rely on their partner's income. All Western welfare states have recently introduced equal opportunities legislation, which should decrease women's economic dependency on their husbands. In Discussion Paper No. 281, Research Fellow Siv Gustafsson explores the effects of the structure of income taxation on women's contribution to family income in Sweden and Germany. Sweden has a highly progressive system of taxation, in which each member of a couple is taxed separately, whereas Germany has joint taxation of incomes, with couples taxed at lower rates than single people. Gustafsson notes that the tax system makes paid work less attractive for German than for Swedish wives. A Swedish wife who earns less than her husband, for example because she works 30 hours per week instead of 40 hours, also pays less tax on her income than her husband. In Germany the earnings of the wife are added to those of her husband and are taxed at a joint rate: wives earn much less money than their husbands and these lower earnings are taxed at a higher rate.
Gustafsson analyses the contribution of female earnings to the before- and after-tax incomes of couples. Her analysis is based on wages, hours of work and other characteristics, such as number of years of schooling, for 1,851 German and 868 Swedish couples. In both countries couples work on average a total of 57 hours per week, but the patterns of labour supply differ sharply between the two countries. The specialization by German husbands in market work and German wives in non-market work is very pronounced: German men work longer hours than Swedish men, while German women work less than Swedish women.
The effects of the tax system on the wife's contribution to family income can be decomposed into three components: the `direct effect' of taxes on earnings at given hours of work, the effect of the tax system on hours worked by wives, and the longer-run effect on women's labour supply because low earnings in paid employment are a disincentive for women to invest in human capital. Gustafsson illustrates the first, or direct, effect by calculating the woman's contribution to the couple's total after-tax earnings, first using the tax system of the home country and then the tax system of the other country. On average German wives contribute 12% to family earnings after tax, compared to 39% by Swedish wives. Taxing the German couples under the Swedish tax system would increase the wife's share of family earnings to 17%. Taxing the Swedish couples under the German system would reduce the woman's contribution to 33%.
The tax system also affects hours worked and investment in human capital by women. Gustafsson notes that in comparison with German couples, Swedish couples have made more equal investments in ed ucation, and Swedish wives have longer work histories than German wives. She estimates an equation in which the wife's share of before-tax family income depends on the couple's education levels as well as the wife's age, hours of work and her years of work experience. The results suggest that differences in labour force participation and hours of work account for between 50 and 70% of the difference in female shares of earnings in the two countries

Income Taxes and Women's Economic Dependency: A Comparison of West Germany and Sweden
Siv Gustafsson

Discussion Paper No. 281, October 1988 (HR)