Reflections on the female labour supply in Malta : the role of income taxation as an incentive mechanism

Abstract

Increasing the participation of women in the labour force is considered as one of the solutions to raising living standards of households, leading to a higher degree of productivity and ultimately to an increase in economic growth. Following the rising trend in female participation in the labour market over the past decade, this study builds upon existing empirical literature with the aim of analysing the dynamics of female labour supply in Malta and the role of income taxation on the decision of the females to participate in the labour market. The main scope of this dissertation is to analyse the effectiveness of tax credits conditional upon women returning to employment and to analyse their effect on labour supply along the intensive margin hence, on hours worked. In pursuance of this objective a cross sectional model for the years 2005 and 2014 is estimated. The model is based on the demographic factors, gross hourly wage rate and an implicit tax function. It is evident that as a result of this scheme, the tax burden on females is lower; hence hours worked by females in the sample increased when compared to a counterfactual scenario. Subsequently, single mothers seem to be more responsive to changes in the tax system following an increase in the net wage rate. Following the results, a set of policy recommendations are outlined, including policies promoting advancements in education and training and targeting older females to participate in the labour market.