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Differences in Hours Worked in the OECD: Institutions or Fiscal Policies?

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  • TINO BERGER
  • FREDDY HEYLEN

Abstract

This paper studies the determinants of the level and the evolution of per capita hours worked in a panel of OECD countries since the 1970s. Following Pesaran (Econometrica, 2006), our empirical strategy allows for the possibility of cross-sectionally correlated error terms due to unobserved common factors which are potentially non-stationary. We find that much of the variation in hours worked across countries and over time can be explained by differences in fiscal policy, i.e. differences in the level and structure of taxes and in the structure of government expenditures. Hours worked rise when labour taxes and non-employment benefits fall and when the shares of productive government expenditures and government wage consumption increase. Differences in (the evolution of) labour and product market institutions have much less of a role to play. Our results show that a careful treatment of the time-series properties of the data is crucial.

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File URL: http://hdl.handle.net/10.1111/j.1538-4616.2011.00427.x
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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 43 (2011)
Issue (Month): 7 (October)
Pages: 1333-1369

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Handle: RePEc:mcb:jmoncb:v:43:y:2011:i:7:p:1333-1369

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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  1. M. Hashem Pesaran, 2006. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," Econometrica, Econometric Society, vol. 74(4), pages 967-1012, 07.
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  17. Planas, Christophe & Roeger, Werner & Rossi, Alessandro, 2007. "How much has labour taxation contributed to European structural unemployment?," Journal of Economic Dynamics and Control, Elsevier, vol. 31(4), pages 1359-1375, April.
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Cited by:
  1. F. Heylen & A. Hoebeeck & T. Buyse, 2011. "Fiscal consolidation, institutions and institutional reform: a multivariate analysis of public debt dynamics," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 11/763, Ghent University, Faculty of Economics and Business Administration.
  2. Alexandre Janiak & Paulo Santos Monteiro, 2011. "Towards a quantitative theory of automatic stabilizers: the role of demographics," Documentos de Trabajo 284, Centro de Economía Aplicada, Universidad de Chile.
  3. Georgiadis, Georgios, 2012. "Towards an explanation of cross-country asymmetries in monetary transmission," Discussion Papers 07/2012, Deutsche Bundesbank, Research Centre.
  4. Heylen Freddy & Van de Kerckhove Renaat, 2013. "Employment by age, education, and economic growth: effects of fiscal policy composition in general equilibrium," The B.E. Journal of Macroeconomics, De Gruyter, vol. 13(1), pages 55, October.
  5. R. Schoonackers & F. Heylen, 2011. "Fiscal Policy and TFP in the OECD: A Non-Stationary Panel Approach," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 11/701, Ghent University, Faculty of Economics and Business Administration.
  6. Inga Hillesheim & Laszlo Goerke, 2013. "Relative Consumption, Working Time, and Trade Unions," IAAEU Discussion Papers 201310, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
  7. Heylen, Freddy & Hoebeeck, Annelies & Buyse, Tim, 2013. "Government efficiency, institutions, and the effects of fiscal consolidation on public debt," European Journal of Political Economy, Elsevier, vol. 31(C), pages 40-59.
  8. Alessandra Casarico & Alessandro Sommacal, 2014. "Taxation and Parental Time Allocation under Different Assumptions on Altruism," CESifo Working Paper Series 4690, CESifo Group Munich.

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