The regulatory environment can impact business creation in several ways, including through the length and cost of start-up procedures, tax environment, access to social protection measures and family policy measures such as parental leave and childcare. This chapter discusses the main regulatory barriers faced by women entrepreneurs, including gender-biased taxation and family policies that favour working as an employee. Policy insight notes from Kenya, Pakistan and Sri Lanka are included, and lessons for policy makers are identified.
Entrepreneurship Policies through a Gender Lens
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OECD Studies on SMEs and Entrepreneurship
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8. Building a supportive regulatory environment for women entrepreneurs
Abstract
Supporting women’s entrepreneurship through the regulatory environment
Regulatory institutions are those elements of the legal and regulatory system that influence the costs and feasibility of creating, growing and closing a business. This includes regulations that deal with market entry and exit, conducting transactions, as well as laws and regulations related to the social welfare system, labour market, taxation of income and capital, as well as other policies that directly affect the costs and rewards of entrepreneurship and self-employment relative to other labour market activities.
Regulatory institutions can also indirectly affect individuals’ decisions related to entrepreneurship through measures that affect social norms. The interplay between regulatory and normative institutions is complex. But it is important to recognise that supportive regulatory institutions, such as an entrepreneurship-friendly business environment, could be weakened by unfriendly normative institutions that impact entrepreneurship decisions. Conversely, however, entrepreneurship-friendly normative institutions could compensate for unfriendly regulatory institutions.
The number and scale of entrepreneurship activities undertaken by women are strongly influenced by the regulatory environment. Regulatory institutions such as the welfare model, tax policies and family policies have a disproportionate impact on the costs and feasibility of women’s entrepreneurship (OECD/EU, 2018; 2013). Tax policies that favour a dual-earner model are likely to foster labour market participation and business activity by women. Maternity and paternity leave provisions have an impact on the general rate of women’s entrepreneurship since parental leave systems typically favour those working as employees.
The role of public policy
The two primary questions for ensuring that regulatory policy is sufficiently supportive of women’s entrepreneurship are: 1) does the regulatory environment directly and indirectly influence labour market decisions appropriately (i.e. working as an entrepreneur vs. working as an employee?); 2) does the regulatory environment directly or indirectly impact women entrepreneurs differently than male entrepreneurs?
The most direct levers to influence entrepreneurship decisions are through the tax system. First, the prevalence and nature of women’s self-employment is often linked to the income tax model used. When the single provider household model is used (i.e. men are the principal income generator), there tends to be a less developed childcare infrastructure and a higher incidence of part-time women’s self-employment. However, a dual-income household model tends to lead to a more developed infrastructure to support families, allowing women entrepreneurs tend to work full-time in their businesses (Strohmeyer et al., 2006). The use of dual household income tax models can therefore be expected to encourage more growth-oriented women’s entrepreneurship.
Business taxation can also influence women’s entrepreneurship when different sectors receive different tax treatment. Women entrepreneurs tend to operate in service sectors, and tax policy may discriminate against women entrepreneurs because they cannot benefit from incentives targeted at specific sectors (e.g. technology) or business legal forms that are male-dominated (García and Garijo, 2014). Governments can review their business taxation systems with a view to removing impediments to entrepreneurship by women.
Governments can also influence women’s entrepreneurship through the social protection system. In most countries, there is currently a clear distinction in the benefits that employees and the self-employed can access. Differences in benefits are based on differences in contribution rates and risks faced. For example, a self-employed person has some, or full, control over the end of a business activity, whereas an employer can reduce the number of hours worked by employees, or lay them off. Debate is ongoing in many countries about making social protection less dependent on work-status and employment-related contributions. One option is to make social protection a universal benefit that provides defined supports to anyone who meets defined criteria (e.g. with children, of a certain age, a disability) regardless of income. However, such a shift would likely have large public costs and could significantly alter incentives for labour market activities, which would require proper appraisal and monitoring.
Lessons from the policy cases
The three policy insight notes in this section each cover a different angle on how the regulatory environment impacts women’s entrepreneurship. The issues of access to social protection and the formalisation of business activities are discussed in the note from Kenya, while the other two insight notes discuss the importance of having strong regulatory institutions (Pakistan) and a supportive business environment (Sri Lanka).
Together, these three policy insight notes highlight two lessons for policy makers:
1. Strong regulatory institutions are needed to promote and support women’s business ownership, including in the areas of parental leave and care responsibilities. Compared with employees, entrepreneurs or the self-employed often have less access to family support. The risk of weak regulatory institutions is that many women entrepreneurs will operate in the informal economy and find “do it yourself” solutions that will cost governments forgone tax revenue and may have a negative impact on the safety and wellbeing of the women undertaking these activities.
2. A lack of social protection for entrepreneurs working in the informal sector, who are mostly women in many countries, contributes to poor perceptions of the value of women’s entrepreneurship endeavours. This calls for governments to do more to help these women entrepreneurs move into the formal economy.
References
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