Uniform agricultural tax abolition and differential household labor supply: Evidence from China's urban household survey

Jun Cai and Kui Zhao

China Economic Review, 2024, vol. 86, issue C

Abstract: Uniform government public policy has steadily shaped the labor supply from households in the past few decades in China with possible differential impact on each parent. This paper investigates how uniform tax policy change plays differential roles in household's labor supply through government public education spending. Utilizing the exogenous shock from China's agricultural tax abolition in 2005, we find that the abolition results in a reduction in female employment but an increase in male employment. Specifically, a 1% increase of agricultural tax to public revenue ratio in the reference year leads to a 0.485% labor supply reduction and 1.50 fewer hours of work per month for married women, whereas the married men's labor supply increases by 0.191% and their working hours by 1.06 h in a typical urban family with school-going children. The effects are greater on married women with primary school-age children and married men from high-asset households. Our mechanism analysis indicates that public education spending works as a substitute for private education spending and affects the household labor supply through investment in children's human capital. Our findings offer a new perspective on the decreasing female labor supply and the widening employment gap between (married) women and (married) men in the Chinese labor market. The findings suggest that public tax policy could lead to unintended consequences on household's labor supply decisions, and thus exacerbate the gender employment gap in the labor market.

Keywords: Female labor supply; Public education spending; Agricultural tax abolition; Human capital investment (search for similar items in EconPapers)
JEL-codes: D12 H31 I28 I38 J22 J70 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:chieco:v:86:y:2024:i:c:s1043951x24000646

DOI: 10.1016/j.chieco.2024.102175

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