Turkey’s Tax Overhaul Boosts Women’s Jobs, Childcare Aid Could Narrow Gender Gap

A new working paper from the International Monetary Fund’s European Department, Fiscal Affairs Department, and Research Department turns the spotlight on one of Turkey’s most persistent challenges: its low labor force participation rate, particularly among women. At just 53 percent, Turkey’s labor force participation lags behind almost all peer economies in the G20 and across emerging markets. The gulf between men and women in employment is especially striking, ranking among the widest in the world. This is not simply a social imbalance, the IMF authors stress, but a macro-critical issue. Closing the gap could expand the country’s labor force substantially, support higher household incomes, and strengthen growth across the economy.

Removing the Hidden Tax Penalty

The research team, Silvia Domit, Yomna Gaafar, Duncan MacDonald, and Carolina Osorio-Buitron, focuses on how fiscal policies can help shift labor market dynamics, with particular attention to personal income tax design and childcare affordability. Their first case study examines the 2022 reform of Turkey’s Minimum Living Allowance (MLA) system, a reform that removed structural tax penalties facing secondary earners. Under the old system, households enjoyed greater tax allowances if a spouse stayed home, effectively discouraging women from entering the workforce. In January 2022, the MLA was abolished and replaced by a universal personal income tax exemption for all earnings up to the minimum wage, regardless of family composition. At the same time, the dependent spouse allowance, which had long rewarded non-working spouses, was scrapped. These reforms introduced greater progressivity and, crucially, ended the disincentive for married women to seek paid work.

The results are telling. Using a combination of microsimulation and econometric models, the paper finds that female participation rose by three percentage points following the reform, compared with 1.5 points for men. Married women, especially those with children, showed the largest shifts into formal employment. The modeling further suggests that women’s probability of working formally rose, while the likelihood of staying at home or engaging in informal work declined. This confirms that women’s labor supply is more sensitive to changes in after-tax income, and that removing implicit penalties can unlock measurable gains.

The Cost of Childcare and the Price of Participation

While the tax reform leveled the playing field for secondary earners, childcare affordability remains a pressing obstacle. The cost of childcare in Turkey is steep, estimated at around TL 2,600 per month in 2022. Families in the top income brackets manage to access pre-school and childcare facilities, but for poorer households, access remains extremely limited. This reality reinforces inequality: wealthier women can work knowing their children are cared for, while poorer women often cannot afford to make the same choice.

The IMF paper highlights how this imbalance translates directly into labor market participation. Two-thirds of working-age women in Turkey remain outside the workforce, and among married women with young children, the figure is even higher. The researchers argue that addressing childcare affordability is essential if Turkey is to meaningfully reduce its labor force participation gap.

Subsidies that Pay for Themselves

To test solutions, the paper simulates the introduction of conditional childcare subsidies, assuming a monthly subsidy equal to the median childcare cost for families where both parents work. The findings are striking: total labor force participation would rise by four percentage points, with female participation increasing by eight points. For parents with young children, the gender gap in labor force participation would narrow from 56 percentage points to just 23.

The fiscal price tag is also relatively modest. The simulations estimate costs between 0.2 and 0.6 percent of GDP, a figure comfortably below the OECD average spending on early childhood education and care, which stands at 0.8 percent. Turkey currently spends only around 0.3 percent of its GDP in this area, so scaling up support would represent both a manageable and high-return investment. Importantly, conditional subsidies tied to parental employment not only expand labor participation but also help offset their own costs through higher income tax revenues and reduced need for social assistance. By contrast, unconditional cash transfers, while improving welfare, carry heavy deadweight costs and risk weakening incentives to work.

Fiscal Policy as a Lever for Equality and Growth

The lessons from Turkey are clear. Tax policy and childcare subsidies, when carefully designed, can deliver substantial labor market improvements. The 2022 tax reform demonstrated how removing long-standing structural disadvantages could bring more women into formal employment. Conditional childcare subsidies, meanwhile, offer a cost-effective path to narrowing the gender gap and enlarging the national workforce. Both policies underscore that fiscal design is not only about redistribution but also about promoting efficiency, inclusivity, and gender equality.

For Turkey, where nearly two-thirds of working-age women remain outside the labor market, the stakes could not be higher. Unlocking women’s participation is not just about fairness; it is about tapping into one of the country’s most underutilized economic resources. As the IMF paper concludes, combining progressive tax reforms with affordable childcare provision could bring the country closer to bridging its deep gender divide, unleashing productivity, and setting the stage for more sustainable growth.