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Women Prefer Larger Governments: Female Labor Supply and Public Spending

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  • Jose Tavares
  • Tiago 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 the changes in female labor force participation and government size are not just coincident in time, they are causally related. We develop a growth model with endogenous fertility, labor force participation and government size to illustrate this causal link. When gov- ernment consumption and/or subsidies decrease the cost of performing household chores - including, but not limited to child rearing and child care - an increase in the female market wage leads to an increase in labor force participation by women and a demand for higher government spending. 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 activi- ties that are overwhelmingly performed by women. We show, for a wide cross-section of developed and developing countries, that higher female participation rates in the labor market are positively associated with larger governments. We investigate the causal link by instrumenting for female labor force participation with the prevalence of contraceptive methods and the relative price of household appliances. Female labor force participation is found to cause an increase in government size, with a 10 percent rise in the former leading to a 6.5 to 9 percent rise in the latter. This effect is stronger for government consumption than for government subsidies and is robust to the country sample, time period, and a set of controls in the spirit of Rodrik (1998)

Suggested Citation

  • Jose Tavares & Tiago Cavalcanti, 2004. "Women Prefer Larger Governments: Female Labor Supply and Public Spending," Econometric Society 2004 North American Summer Meetings 4, Econometric Society.
  • Handle: RePEc:ecm:nasm04:4
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. 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.
    3. Tiago V. de V. Cavalcanti & José Tavares, 2008. "Assessing the "Engines of Liberation": Home Appliances and Female Labor Force Participation," The Review of Economics and Statistics, MIT Press, vol. 90(1), pages 81-88, February.
    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.

    More about this item

    Keywords

    Economic Development; Female Labor Supply; Government Size; Home Ac-;

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • J1 - Labor and Demographic Economics - - Demographic Economics
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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