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Women Prefer Larger Governments: Female Labor Supply and Public Spending

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  • José Tavares
  • Tiago V. de V. Cavalcanti

Abstract

The increase in income per capita is accompanied, in virtually all countries, by two changes in the structure of the economy: an increase in the share of government spending in GDP and an increase in female labor force participation. This paper suggests that these two changes are not just overlapping in time, they are causally related. This paper develops a growth model with endogenous fertility, labor force participation and government size that illustrates this causal link. Economic development is accompanied by an increase in the female market wage, thus increasing the opportunity cost of staying at home. If government spending decreases the time cost of performing household chores - including, but not limited to child rearing and child care - it makes sense for women to enter the labor market and demand higher government spending, financed by increased taxation. As women make the decision to work outside the home, they increase their demand for services typically provided by the government, such as education and health care, which, in turn, decrease the cost of home and family activities that are overwhelmingly performed by women. Using a wide cross-section of data for developed and developing countries, we show that higher rates of female participation in the labor market are indeed positively associated with larger governments. Furthermore, we investigate the causal link between the two variables using as instrumental variables for female labor force participation newly collected data on the relative price of home appliances as well as the fertility rate. We find evidence of a causal link between female labor force participation and government size. A 10 percent rise in female participation in the labor market leads to a 7 to 8 percent rise in government size. This effect is robust to the country sample, time period, and a set of controls in the spirit of Rodrik (1998).

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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society 2004 Latin American Meetings with number 119.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:latm04:119

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Keywords: Economic Development; Female Labor Supply; Government Size; Home Activities.;

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References

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  1. Jeremy Greenwood & Ananth Seshadri & Mehmet Yorukoglu, 2005. "Engines of Liberation," Review of Economic Studies, Oxford University Press, vol. 72(1), pages 109-133.
  2. Tanzi,Vito & Schuknecht,Ludger, 2000. "Public Spending in the 20th Century," Cambridge Books, Cambridge University Press, number 9780521662918.
  3. Sherwin Rosen, 1996. "Public Employment and the Welfare State in Sweden," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 729-740, June.
  4. Dani Rodrik, 1996. "Why Do More Open Economies Have Bigger Governments?," NBER Working Papers 5537, National Bureau of Economic Research, Inc.
  5. Jeremy Greenwood & Ananth Seshadri & Guillaume Vandenbroucke, 2002. "The Baby Boom and Baby Bust," Economie d'Avant Garde Research Reports 1, Economie d'Avant Garde.
  6. Case, Anne & Paxson, Christina, 2001. "Mothers and others: who invests in children's health?," Journal of Health Economics, Elsevier, vol. 20(3), pages 301-328, May.
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  8. Patricia M. Anderson & Philip B. Levine, 1999. "Child Care and Mothers' Employment Decisions," NBER Working Papers 7058, National Bureau of Economic Research, Inc.
  9. Jeremy Greenwood & Ananth Seshadri & Guillaume Vandenbroucke, 2002. "The baby boom and baby bust: some macroeconomics for population economics," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
  10. Jeremy Greenwood & Ananth Seshadri, 2004. "Technological Progress and Economic Transformation," NBER Working Papers 10765, National Bureau of Economic Research, Inc.
  11. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-27, October.
  12. Daron Acemoglu & David H. Autor & David Lyle, 2002. "Women, War and Wages: The Effect of Female Labor Supply on the Wage Structure at Mid-Century," NBER Working Papers 9013, National Bureau of Economic Research, Inc.
  13. Galor, Oded & Weil, David, 1995. "The Gender Gap, Fertility and Growth," CEPR Discussion Papers 1157, C.E.P.R. Discussion Papers.
  14. A. Chevalier & T. K. Viitanen, 2002. "The causality between female labour force participation and the availability of childcare," Applied Economics Letters, Taylor & Francis Journals, vol. 9(14), pages 915-918.
  15. Husted, Thomas A & Kenny, Lawrence W, 1997. "The Effect of the Expansion of the Voting Franchise on the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 54-82, February.
  16. Jaisri Gangadharan & Joshua Rosenbloom & Joyce Jacobson & James Wishart Pearre III, 1996. "The Effects of Child-Bearing on Married Women's Labor Supply and Earnings: Using Twin Births as a Natural Experiment," NBER Working Papers 5647, National Bureau of Economic Research, Inc.
  17. Claudia Goldin, 1990. "Understanding the Gender Gap: An Economic History of American Women," NBER Books, National Bureau of Economic Research, Inc, number gold90-1.
  18. Claudia Olivetti, 2006. "Changes in Women's Hours of Market Work: The Role of Returns to Experience," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(4), pages 557-587, October.
  19. John R. Lott & Jr. & Lawrence W. Kenny, 1999. "Did Women's Suffrage Change the Size and Scope of Government?," Journal of Political Economy, University of Chicago Press, vol. 107(6), pages 1163-1198, December.
  20. David N. Weil & Oded Galor, 2000. "Population, Technology, and Growth: From Malthusian Stagnation to the Demographic Transition and Beyond," American Economic Review, American Economic Association, vol. 90(4), pages 806-828, September.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Comportamento econômico das mulheres
    by Roberto Ushisima in Empresas e Mercados on 2009-09-08 18:06:00
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Cited by:
  1. Tiago V. de V. Cavalcanti & José Tavares, 2004. "Assessing The "Engines Of Liberation": Home Appliances And Female Labor Force Participation," Anais do XXXII Encontro Nacional de Economia [Proceedings of the 32th Brazilian Economics Meeting] 037, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  2. Yann Algan & Pierre Cahuc, 2005. "The Roots of Low European Employment: Family Culture?," NBER Chapters, in: NBER International Seminar on Macroeconomics 2005, pages 65-109 National Bureau of Economic Research, Inc.
  3. Dalibor Eterovic & Cassandra Sweet, 2011. "How Women and Illiterates Shaped Education Outcomes in 20th Century Latin America," Working Papers wp_007, Adolfo Ibáñez University, School of Government.
  4. Aidt, T.S. & Eterovic, D.S., 2007. "Give and Take: Political Competition, Participation and Public Finance in 20th Century Latin America," Cambridge Working Papers in Economics 0714, Faculty of Economics, University of Cambridge.
  5. Tomas Kögel, 2006. "An explanation of the positive correlation between fertility and female employment across Western European countries," Discussion Paper Series 2006_11, Department of Economics, Loughborough University.

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