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Long-term changes in labor supply and taxes: evidence from OECD countries, 1956-2004

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  • Lee Ohanian
  • Andrea Raffo
  • Richard Rogerson

Abstract

We document large differences in trend changes in hours worked across OECD countries over the period 1956-2004. We then assess the extent to which these changes are consistent with the intratemporal first order condition from the neoclassical growth model. We find large and trending deviations from this condition, and that the model can account for virtually none of the changes in hours worked. We then extend the model to incorporate observed changes in taxes. Our findings suggest that taxes can account for much of the variation in hours worked both over time and across countries.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Kansas City in its series Research Working Paper with number RWP 06-16.

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Date of creation: 2006
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Handle: RePEc:fip:fedkrw:rwp06-16

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Keywords: Hours of labor ; Labor supply ; 401(k) plans;

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  1. Hall, Robert E, 1997. "Macroeconomic Fluctuations and the Allocation of Time," Journal of Labor Economics, University of Chicago Press, vol. 15(1), pages S223-50, January.
  2. Bencivenga, Valerie R, 1992. "An Econometric Study of Hours and Output Variation with Preference Shocks," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(2), pages 449-71, May.
  3. Richard Rogerson, 2007. "Structural Transformation and the Deterioration of European Labor Market Outcomes," NBER Working Papers 12889, National Bureau of Economic Research, Inc.
  4. Richard B. Freeman & Ronald Schettkat, 2005. "Marketization of household production and the EU-US gap in work," Economic Policy, CEPR & CES & MSH, vol. 20(41), pages 6-50, 01.
  5. Casey B. Mulligan, 2002. "A Century of Labor-Leisure Distortions," NBER Working Papers 8774, National Bureau of Economic Research, Inc.
  6. Ingram, B.F. & Kocherlakota, N.R. & Savin, N.E., 1992. "Explaining Business Cycles : A Multiple Shock Approach," Working Papers 92-09, University of Iowa, Department of Economics.
  7. Edward C. Prescott, 2003. "Why do Americans work so much more than Europeans?," Staff Report 321, Federal Reserve Bank of Minneapolis.
  8. Valerie A. Ramey & Neville Francis, 2006. "A Century of Work and Leisure," NBER Working Papers 12264, National Bureau of Economic Research, Inc.
  9. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2007. "Business Cycle Accounting," Econometrica, Econometric Society, vol. 75(3), pages 781-836, 05.
  10. Steven J. Davis & Magnus Henrekson, 2004. "Tax Effects on Work Activity, Industry Mix and Shadow Economy Size: Evidence from Rich-Country Comparisons," NBER Working Papers 10509, National Bureau of Economic Research, Inc.
  11. Harold L. Cole & Lee E. Ohanian, 2002. "The U.S. and U.K. Great Depressions Through the Lens of Neoclassical Growth Theory," American Economic Review, American Economic Association, vol. 92(2), pages 28-32, May.
  12. Richard Blundell & Thomas MaCurdy, 1998. "Labour supply: a review of alternative approaches," IFS Working Papers W98/18, Institute for Fiscal Studies.
  13. Richard Rogerson, 2006. "Understanding Differences in Hours Worked," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(3), pages 365-409, July.
  14. Richard Rogerson, 2007. "Taxation and Market Work: Is Scandinavia an Outlier?," NBER Working Papers 12890, National Bureau of Economic Research, Inc.
  15. Parkin, Michael, 1988. "A method for determining whether parameters in aggregative models are structural," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 215-252, January.
  16. Olivier Blanchard, 2004. "The Economic Future of Europe," Journal of Economic Perspectives, American Economic Association, vol. 18(4), pages 3-26, Fall.
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