Changes to how Irish couples were taxed in 2000 has led to an increase in the number of married women in employment according to a new study by the Economic and Social Research Institute (ESRI).
Budget 2000 introduced a radical reform of the tax treatment of Irish couples which was anticipated to increase the labour supply of women. There was considerable debate and controversy at the time, with differing views as to how great the increase in married women’s participation would be. Analysis by Dr. Karina Doorley (ESRI) now shows that the employment rate of married women increased by about 5 percentage points as a result of the reform.
Up to 2000, Ireland had a system of joint taxation, which allowed a working spouse to use the tax allowances, credits and bands of a non-working spouse. This imposed a higher tax rate on the non-earning spouse if they joined the labour market, making it less likely that they would take up employment. Budget 2000 partly individualised Ireland’s income taxation system through the introduction of a non-transferable element of the standard rate band. This increased the financial incentive for non-working spouses (typically women) to work. There was a clear response, as identified in this research, indicating the potential of tax reform to address labour supply issues.
The international trend in recent decades has been to move towards individualised taxation systems. This research provides policymakers with evidence of how a previous reform of this type affected labour supply.
While labour force participation rates for Irish women have risen in recent decades they remain low by European standards with approximately 64 per cent of Irish women employed in 2016, compared to 77 per cent of Irish men.