Tax reforms for the provision of care in Brazil: public investment or tax incentives?
Public financing of care-related policies, infrastructure, and public procurement, the promotion of public care networks, through investments in daycare centers and schools, including full-time ones, hospitals, elderly care institutions, and cafeterias, among other care services, is not only capable of relieving the high workload that falls on the shoulders of women, especially those from the working class, but it can also create jobs for many of them.
The current Brazilian context provides an opportune moment to discuss the role of the government in guaranteeing access to care services but not without substantial obstacles. The very narrow fiscal space enforced by the approval of a new fiscal rule limits the universe of policies that are feasible, making it much easier for a tax expenditure to be implemented instead of an increase in public spending. Furthermore, previous work has shown that most tax reforms presented in Congress have a negative impact on the tax burden and consequently on the government budget. This paper provides evidence of the distributional cost of this observed congressional preference by analyzing two types of care-related policies. First, we investigate reforms encompassing tax incentives related to the care sector. Second, we consider tax reforms that allow for an increase in government expenditures in care infrastructures.
We use data from Brazil’s expenditure survey (POF) to estimate the tax expenditure of allowing for a personal income tax deduction for care-related services such as spending with private nurseries, hiring babysitters, and private education for children up to 15 years old. We compare the impact of such a policy on inequality to a government expenditure towards public services of the same size. We find that while tax deductions for care-related services would benefit people at the top two deciles of the income distribution, investing in public care services would have a higher impact on people at the first three deciles.
We use the same expenditure amount to estimate the impact on jobs of the two possible policies using an input-output model. We compare the number and distribution of the jobs created with respect to gender and race and find that public expenditure in care infrastructure creates more jobs for women and has an overall employment creation impact that is around 55% higher than the impact of a tax deduction of the same size.
Our results point to the fact that although tax deduction policies are politically easier to implement, they are not justifiable in terms of their impact on income, gender, and racial inequality when compared to the alternative of using the same value of tax expenditures toward the provision of public services.