Macroeconomic Effects of Reducing the Gender Pay Gap in an Emerging Economy

We analyze the macroeconomic effects of reducing gender wage discrimination in Colombia using a small open-economy general equilibrium model with male and female agents that decide jointly over market and home production. Closing the gender gap raises GDP and consumption by increasing female earnings, aggregate labor supply, and investment. The size of these gains depends critically on the substitutability between male and female labor in market and home activities. When reductions in discrimination are implemented through fiscal policy and financed with distortionary taxes, the resulting gains are substantially smaller. This highlights a key policy trade-off: while reducing discrimination promotes growth, the financing mechanism can dampen its benefits, particularly when funding relies on taxes on male labor income. Finally, intrahousehold risk-sharing emerges as an important amplification channel; in its absence, the gains from reducing wage discrimination are substantially reduced.