Financial Transparency Coalition

Recently, a considerable amount of literature has been published on gender and tax compliance, showing that females tend to comply with tax law more than men.

Why is it interesting, you ask?

Well, when discussing gender, most people associate it with the discussion of human rights and equality. We have previously shown how and why investing in women is an economic imperative and we know that structural economic obstacles have a disproportionately affect on women. Gender equality is a necessary component of many different goals, but especially important in a time when countries all around the world are focused on job creation and sustainable economic growth.

So, what are the links between gender justice and illicit financial flows? – This is of many questions we’ll be discussing at our annual conference in Helsinki, but before we have that debate, we want to draw your attention to the significant (and growing) body of literature on the subject.

Before looking into the differences of tax compliance, it should be highlighted that it has long been established that men and women, in general, have both attitudinal and political differences:

• Women in advanced industrial democracies increasingly tend to vote more to the left of the political spectrum than men
• Women are more likely to support state intervention through the expansion of the welfare state
• Women are less likely to condone corruption (Barnes and Beaulieu, 2014; Dollar et al., 2001; Torgler and Valev, 2010)

However, a person’s behavior is structured by a combination of many factors across the social, political and the economic spectrum. To establish whether or not an individual’s behavior is of their internal preferences or of societal constraints is quite challenging. Nevertheless, this is where the recent research is breaking new ground. When it comes to taxation specifically, men and women appear to have different attitudes. In contrast to men, women seem to find the tax code fairer, they view the likelihood of getting caught for evasion greater, and they overestimate the penalties for evasion.

It would seem safe to assume that the gap between men and women on taxation compliance would be smaller in countries that have achieved greater levels of legal and social equality.

However, that doesn’t seem to be the case.

A study this year found that females tend to comply with tax law more than men, particularly in Western Europe and North America. They also found a lower, but significant gap in East Asia & Pacific, in Sub/Saharan Africa and Latin America & Caribbean. Similar, but unexpectedly findings came through in another study, conducted this year. They found that gender gap decreases, for example, when they increased the return on the public good. Similarly, the gap increased when they increased tax rates. More surprising was where the larger gender gap and tax compliance took place – Sweden.

Sweden has achieved one of the highest levels of gender equality in the world (ranked No 4), yet demonstrated the largest tax compliance gap, a gap statistically greater than in the US (ranked No 45). These findings challenge the liberal assumption that given equal conditions, individuals behave in the same way. The study demonstrates that even where structural reforms have actively targeted and effectively reduced legal and formal gender gaps, the gender variation in tax compliances persists. It should be underlined that by no means does this indicate that gender equality is irrelevant for developing a sustainable financial system; to the contrary, it actually emphasizes the importance of it. The theories for why are broadly discussed, and we encourage you to take part in it.

Why is it that women appear to be much more tax compliant than men in every country and under every condition?

A common assumption is that women probably are more honest on their taxes because they are risk-averse, or less likely to take risks. Neither of the studies mentioned above were able to establish a significant difference between men and women in risk attitudes in connection to tax compliances, but that does not mean we can write it off as a factor.

Van Stavern (2002) pointed out that “[t]he generation of excessive financial risk is almost exclusively a male activity. Men are the main decision-makers in finance, men undertake the larger financial transactions, and men are the main speculators. Yet, the persons who carry the consequences of global financial crises – especially in the care economy – are predominantly female.” The burden of excessive financial risk lies not upon the decision makers, but the, – mostly female – citizens who are keeping families and communities going. That being said, the gap between gender and tax compliances has indeed been established under ‘every condition’ – from gender progressive places like Sweden to the halls of the corporate world.

For instance:

• Firms with female CFOs have higher financial reporting quality
• Female executives are less likely to make acquisitions and issue debt
• When female CFOs make acquisitions, the announcement returns are higher compared to those made by firms with male executives
• Female CFOs does indeed, like their male counterparts, engage in broad tax avoidance, but they’re less aggressive

Following the Asian financial crises, especially in Indonesia and the Philippines, the number of female workers increased, as they were the ones who took the role of provider of last resort. In South-Korea, the government set up a national campaign under the slogan ‘Get Your Husband Energized”, calling for women to provide and support their husbands who were depressed due to unemployment or bankruptcy. Men, however, were not called upon to provide reciprocal support for their wives

To summarize, men are more likely to cheat their taxes, and women pay for it – they literally pay for it.

What does this mean for the way we organize our institutions?

One out of every four Russell 3000 companies does not have even one woman on their board. And six out of ten companies have boards that are just 15% female. Moreover, the pay gap in the US is about 17 %. While there have been steps towards gender equality in the boardroom, we still have a long way to go.

Equal representation in public institutions and the corporate world would make policy work more democratically representative from a gender perspective, and it may prevent the large opportunity costs women currently experience in global finance. While gender equality isn’t necessarily the same for elite women and poor women, female representation on the boards of financial institutions is a necessary condition for gender-aware decision-making. It’s not sufficient by itself, but it’s an important step in the right direction.