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Taxes and Labor Supply: Portugal, Europe, and the United States

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  • Andre C. Silva

Abstract

I relate hours worked with taxes on consumption and labor for Portugal, France, Spain, United Kingdom and United States. From 1986 to 2001, hours per worker in Portugal decreased from 35.1 to 32.6. With the parameters for Portugal, the model predicts hours worked in 2001 with an error of only 12 minutes from the actual hours. Across countries, most predictions differ from the data by one hour or less. The model is not sensible to special assumptions on the parameters. I calculate the long run effects of taxes on consumption, hours, capital and welfare for Portugal. I extend the model to discuss implications for Social Security. I discuss the steady state and the transition from a pay-as-yougo to a fully funded system. JEL codes:E6, H3

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Bibliographic Info

Paper provided by Universidade Nova de Lisboa, Faculdade de Economia in its series FEUNL Working Paper Series with number wp561.

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Length: 32 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:unl:unlfep:wp561

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Keywords: labor supply; consumption tax; labor income tax;

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References

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  1. Olympia Bover & Pilar García-Perea & Pedro Portugal, 2000. "Labour market outliers: Lessons from Portugal and Spain," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 15(31), pages 379-428, October.
  2. Davis, Steven J. & Henrekson, Magnus, 2004. "Tax Effects on Work Activity, Industry Mix and Shadow Economy Size: Evidence from Rich-Country Comparisons," Ratio Working Papers, The Ratio Institute 57, The Ratio Institute.
  3. Mendoza, Enrique G. & Razin, Assaf & Tesar, Linda L., 1994. "Effective tax rates in macroeconomics: Cross-country estimates of tax rates on factor incomes and consumption," Journal of Monetary Economics, Elsevier, Elsevier, vol. 34(3), pages 297-323, December.
  4. Alfredo Marvão Pereira & Pedro Rodrigues, 2001. "Tax parameters in the Portuguese economy - Part II: direct taxes," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department, Banco de Portugal, Economics and Research Department.
  5. Rogerson, Richard & Wallenius, Johanna, 2009. "Micro and macro elasticities in a life cycle model with taxes," Journal of Economic Theory, Elsevier, Elsevier, vol. 144(6), pages 2277-2292, November.
  6. Ayse Imrohoroglu & Selahattin Imrohoroglu & Douglas H. Joines, 1999. "Social Security in an Overlapping Generations Economy with Land," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 638-665, July.
  7. Laurence J. Kotlikoff & Kent Smetters & Jan Walliser, 1999. "Privatizing Social Security in the U.S. -- Comparing the Options," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 532-574, July.
  8. Peter Klenow & Andrés Rodríguez-Clare, 1997. "The Neoclassical Revival in Growth Economics: Has It Gone Too Far?," NBER Chapters, National Bureau of Economic Research, Inc, in: NBER Macroeconomics Annual 1997, Volume 12, pages 73-114 National Bureau of Economic Research, Inc.
  9. HUANG, HE & IMROHOROG[caron]LU, SELAHATTIN & SARGENT, THOMAS J., 1997. "Two Computations To Fund Social Security," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 1(01), pages 7-44, January.
  10. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 110(2), pages 458-474, April.
  11. Edward C. Prescott, 2002. "Prosperity and Depression," American Economic Review, American Economic Association, American Economic Association, vol. 92(2), pages 1-15, May.
  12. 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.
  13. Pedro Portugal & Olivier Blanchard, 2001. "What Hides Behind an Unemployment Rate: Comparing Portuguese and U.S. Labor Markets," American Economic Review, American Economic Association, American Economic Association, vol. 91(1), pages 187-207, March.
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Cited by:
  1. Margarida Duarte & Diego Restuccia, 2007. "The structural transformation and aggregate productivity in Portugal," Portuguese Economic Journal, Springer, Springer, vol. 6(1), pages 23-46, April.
  2. Alfredo M. Pereira & Jorge M. Andraz, 2009. "Social Security And Economic Performance In Portugal: After All That Has Been Said And Done How Much Has Actually Changed?," Working Papers, Department of Economics, College of William and Mary 81, Department of Economics, College of William and Mary.
  3. Klaus Masuch & Ramon Gómez-Salvador & Nadine Leiner-Killinger & Rolf Strauch & Jarkko Turunen & Melanie Ward-Warmedinger & Jan De Mulder & Harald Stahl & Yvonne McCarthy & Daphne Nicolitsas & Aitor L, 2008. "Labour supply and employment in the euro area countries - developments and challenges," Occasional Paper Series 87, European Central Bank.

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