Assessing the Effect of Fiscal Policies on the Gender Income Gap in Central America, Panama and the Dominican Republic

Abstract

Persistent gender economic differences have led to an extensive amount of literature devoted to the gender wage gap. However, wages are only one component of income for women and men, and self-employment income, non-labour income, taxes, pensions, and benefits are mostly omitted from the analysis. In this paper we contribute to the small but growing literature of gendered fiscal incidence by studying the effect of taxes, social insurance contributions and benefits on the gender gaps in disposable income for five Central American countries: El Salvador, Costa Rica, Guatemala, Panama, and Dominican Republic. Our analysis makes use of tax-benefit microsimulation models based on representative household surveys for each country. We compare results for 2019 and for a year afterwards for each country to determine if there are differences due to the COVID-19 pandemic. Three sets of findings are worth highlighting. Firstly, the tax-benefit systems of Panama and Costa Rica have the largest redistributive effect measured by the size of taxes and benefits at the upper and lower part of the disposable income distribution respectively. Second, Costa Rica is the country that close the gender income gap the most, while in the other countries the tax benefit system does not have an important effect in this regard. Thirdly decomposition of the raw disposable income gender gap indicates that a) labour income is the biggest contributor to the gap in all countries and periods analyzed with a very minor role for tax-benefit instruments. b) almost half of the gap is explained by differences in attributes such as education, age, or geographical location, so a significant gap remains unexplained c) differences in employment rates between genders are less important than differences in remunerations.