Women Prefer Larger Governments: Growth, Structural Transformation and Government Size∗

The increase in income per capita is accompanied, in virtually all countries, by two changes in the structure of the economy, namely an increase in the share of government spending in GDP and an increase in female labor force participation. This paper sug-gests that these two changes are causally related. We develop a growth model where the structure of the economy is endogenous so that participation in market activities and gov-ernment size are causally related. Economic growth and rising incomes are accompanied by a greater incentive for women to engage in labor market activities as the opportunity cost of staying at home increases. We hypothesize that government spending decreases the cost of performing household chores such as, but not limited to, child rearing and child care so that couples decide to engage further in the labor market and chose a higher tax rate to finance more government spending. Using a wide cross-section of data for developed and developing countries, we show that higher participation by women in the labor market are indeed positively associated with larger governments. Furthermore, we investigate the causal link between the two variables using as instrumental variables