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This blog was originally published on odi.org on 10 July 2024 here, and is reproduced with kind permission.
This blog is the fifth in a new ODI series showcasing ideas for how global financial flows and tax policy can better serve the cause of gender equality.
Gender equality and women’s empowerment are human rights, key to attaining social fairness, embedded in international human rights law and one of the key Sustainable Development Goals. Achieving gender equality, including in education, health and labour force participation, has been identified as a key factor in fostering economic growth.
Despite improvements in women’s economic wellbeing, opportunities and rights, there remain significant and persistent gender gaps in income and employment. Women are more likely to be poorer, to live in poorer households or to earn less than men (Figure 1 below). Women are poorer than men because fewer women work or if they do work, they work fewer hours (Figure 2), or they earn less per hour (Figure 3). Women bear the greatest burden of unpaid work across regions, and this affects the gap in paid work (Figure 4).
There are many ways that international activists and the development community aim to support gender equality and women’s empowerment. For example, 43% of bilateral ODA (USD 64.1 billion) reported gender equality as a policy objective in 2021-2022 (OECD DAC statistics, 2022), although there are reasons to suggest that allocations may be being scaled back. When looking at domestic public finance, since the 1980s there has been an active campaign to encourage countries to apply a ‘gender lens’ throughout fiscal policymaking and budgetary processes, sometimes referred to as ‘gender-responsive budgeting’ (GRB), to advance gender equality objectives. Over 80 countries have adopted GRB practices; however there is limited evidence on the impact these practices had on public spending directed towards addressing gender gaps and on the resulting outcomes for women and girls. More recently, there has been a growing interest in the intersection of gender and tax policies. One measure that has captured a lot of attention that we think is worth some critical attention is the abolition of the so-called ‘tampon tax’.
Almost 50 countries have cut the rate or scrapped consumption taxes (or value added taxes, VAT) on menstrual hygiene products (MHP) by 2023 motivated by enhancing gender equality. Advocates state that given many other necessities, including products mainly consumed by men such as razors and condoms, are exempted from value added taxes (or other consumption taxes) then taxing MHP is discriminatory and should be abolished. Campaigners argue that removing the ‘tampon tax’ would represent a symbolic win for those fighting against discrimination against women and could achieve multiple objectives: “end period stigma, ensure affordability of essential goods to end period poverty, and address discrimination against women”, fostering gender equality. While these are laudable objectives, scrapping taxes on MHP may not be the most cost-effective solution and ending stigma is likely to require broader information campaigns, tailored to contexts.
Reducing or eliminating VAT on MHP may reduce the tax burden faced by women in certain contexts but is not well targeted at the poor. The benefits would accrue as much or more to high-consumption households, who spend more in absolute terms on MHP. This makes it an expensive policy choice for addressing period poverty: exemptions or reduced rates on essential goods are inefficient compared to cash transfers as a means of protecting the poor. Moreover, the impact on poverty is likely to be low, since evidence from high-income countries (HICs) on the extent to which VAT cuts have translated to lower prices for consumers is inconclusive (UK, Germany) and evidence from low-and middle-income countries (L&MICs) is lacking. There is evidence, however, suggesting that VAT in L&MICs falls less on the poorest anyway, where they tend to buy or make products in informal settings that are not subject to VAT. Furthermore, in L&MICs, market access to these products can be patchy and cultural norms may shape preferences for products other than the sanitary pads and tampons likely to be subject to the VAT cut. Access to menstrual hygiene management safe spaces may also be lacking for many women and girls from lower-income households. In these contexts, VAT reduced rates would likely benefit better-off women and those purchasing expensive brands, including imported brands.
Going a step further, one could flip the coin and think: why not equalise the tax on all items (including condoms, razors, and tampons), and use the tax revenue for better targeted spending measures directed at the most vulnerable, including women on low incomes? For example, revenue collected through VAT can enable governments to fund public goods and services, including the provision of free sanitary pads or menstrual cups alongside information campaigns in lower income areas and schools. Emerging evidence suggests that targeted interventions may help end period poverty and improve girls and women’s outcomes such as school attendance. In any case, more evidence to understand the impact and cost-effectiveness of alternative policies, including but not limited to tax policies, on desired outcomes is needed. The hyperfocus on tampon taxes to advance gender equality, while sounding helpful, may cause more harm than good by promoting an inequitable and inefficient policy and potentially generating a false sense of progress towards gender equality, while distracting from debate about a wider range of solutions.
When thinking about tax and gender, it is key to consider the tax and spending system as a whole, including tax and customs administration. Not every tax and spending policy has to address gender gaps. Most of the impact of tax and benefits arises because of gendered differences in income, employment, entrepreneurship and consumption patterns, in turn mediated by gender gaps in a wide array of legal rights and protection and social norms more generally.
Despite the limited evidence base, some policy lessons can be drawn from the emerging studies on the impact of tax and transfers on gender income inequality and poverty gaps. For instance, policies to narrow known gender gaps, such as investment in education, health and infrastructure, can be particularly effective in LICs. Similarly, in-kind transfers in education and health can alleviate income inequality by redistributing resources and changing employment outcomes. Furthermore, spending on infrastructure such as water and sanitation can increase women’s wellbeing, free-up time used in collecting water and access to sanitation, and hence decrease the opportunity costs of studying and employment. Evidence also suggests that a broad-based indirect tax, combined with more equitable spending is likely to be more effective than removing VAT from MHP. That is because VAT is an efficient way to raise revenue, which could fund spending that improves access to health, education, cash transfers and sanitation infrastructure by women in lower-income households in LICs.
In fact, successful policies are likely to be those that more directly address the underlying causes of gender gaps. As shown in the charts above, gender gaps arise mostly because there are more women in lower-income households to begin with and they are more likely to be second earners and the main carers of children and the elderly (and therefore less likely to be in formal or full-time employment). Effective policies are therefore likely to be those that improve incentives for low-income or second earners to enter and stay in formal employment, including provision of care for children and the elderly, offering parental leave and flexible work arrangements, as well as improving the overall fairness (progressivity) of the tax and benefit system, to ensure that the burden of tax falls on those with the greatest ability to pay while targeting social spending to those most in need.
Applying a ‘gender lens’ to other aspects of tax systems, such as tax and customs administration practices and tax compliance behaviour may also reveal areas for improvement. The way that taxes are administered can have an important impact on how much tax is paid by whom, and hence the overall progressivity of the tax system.
Finally, making effective policy choices requires evidence, but there is a persistent ‘gender data gap’ across countries. Efforts to improve the collection and sharing of survey and administrative data with sex-disaggregated information on education, time allocation, work patterns, earnings, income and resources is crucial to provide policy-relevant evidence. This would help advance understanding of the impact of fiscal policies on gender gaps, including on income and employment, and how best to address them.
More broadly, we need to look beyond tax and spending policies: changing social and cultural norms and the type of jobs available to both women and men must be part of the solution. Discrimination against women is still a major barrier, and the tampon tax is clearly not the most effective way to end this.
Published on: 10th July 2024
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