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Taxes, Social Subsidies, and the Allocation of Work Time

  • L. Rachel Ngai
  • Christopher A. Pissarides

We examine the allocation of hours of work across industrial sectors in OECD countries. We find large disparities across three sector groups, one that produces goods without home substitutes, and two others that have home substitutes but are treated differently by welfare policy. We attribute the disparities to the countries' tax and subsidy policies. High taxation substantially reduces hours in sectors that have close home substitutes but less so in other sectors. Subsidies increase hours in the subsidized sectors that have home substitutes. We compute these policy effects for 19 OECD countries. (JEL H24, H31, J22)

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Article provided by American Economic Association in its journal American Economic Journal: Macroeconomics.

Volume (Year): 3 (2011)
Issue (Month): 4 (October)
Pages: 1-26

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Handle: RePEc:aea:aejmac:v:3:y:2011:i:4:p:1-26
Note: DOI: 10.1257/mac.3.4.1
Contact details of provider: Web page: https://www.aeaweb.org/aej-macro
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  1. Rachel Ngai & Christopher Pissarides, 2006. "Trends in Hours and Economic Growth," 2006 Meeting Papers 56, Society for Economic Dynamics.
  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 57, The Ratio Institute.
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  10. Ohanian, Lee & Raffo, Andrea & Rogerson, Richard, 2008. "Long-term changes in labor supply and taxes: Evidence from OECD countries, 1956-2004," Journal of Monetary Economics, Elsevier, vol. 55(8), pages 1353-1362, November.
  11. Conny Olovsson, 2004. "Why do Europeans Work so Little?," 2004 Meeting Papers 760, Society for Economic Dynamics.
  12. Richard Rogerson, 2007. "Structural Transformation and the Deterioration of European Labor Market Outcomes," NBER Working Papers 12889, National Bureau of Economic Research, Inc.
  13. 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.
  14. Falvey, Rodney E & Gemmell, Norman, 1996. "Are Services Income-Elastic? Some New Evidence," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 42(3), pages 257-69, September.
  15. Lindbeck, Assar, 1982. "Tax Effects versus Budget Effects on Labor Supply," Economic Inquiry, Western Economic Association International, vol. 20(4), pages 473-89, October.
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  18. Esping-Andersen, Gosta, 1999. "Social Foundations of Postindustrial Economies," OUP Catalogue, Oxford University Press, number 9780198742005, July.
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