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Work and taxes: allocation of time in OECD countries

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  • Lee E. Ohanian
  • Andrea Raffo
  • Richard Rogerson

Abstract

Policymakers devote a great deal of attention to short-run fluctuations in the labor market. Central banks monitor indicators of labor market tightness in the conduct of monetary policy due to the potential implications for inflation. And fiscal authorities are concerned with the budget consequences of fluctuations in the labor market because they affect both revenues and expenditure programs. More generally, these fluctuations may be associated with significant losses in welfare. ; This article stems from a striking empirical observation about long-run variations in labor market outcomes: Long-run changes in total hours of work in OECD countries exceed the variation of hours worked over the business cycle in a representative country (say, the United States) by almost an order of magnitude. If understanding changes in hours of work of the magnitude of business cycle fluctuations is an important policy concern, then understanding the sources of these trend differences is also crucial. Surprisingly, the academic and policy debates have focused on the business cycle movements in the labor market, almost ignoring low frequency changes. ; Lee Ohanian, Andrea Raffo, and Richard Rogerson describe the steep decline in average hours worked and the large variation across countries in the magnitude of this decline. Next, they find that changes in labor taxes account for a large share of the trend differences. Finally, they find that countries with high tax rates devote less time to market work, but more time to home activities, such as cooking and cleaning. Moreover, this reallocation of time from market work to home work is much stronger for females than for males.

Suggested Citation

  • Lee E. Ohanian & Andrea Raffo & Richard Rogerson, 2007. "Work and taxes: allocation of time in OECD countries," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 37-58.
  • Handle: RePEc:fip:fedker:y:2007:i:qiii:p:37-58:n:v.92no.3
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    References listed on IDEAS

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    1. Alberto F. Alesina & Edward L. Glaeser & Bruce Sacerdote, 2006. "Work and Leisure in the U.S. and Europe: Why So Different?," NBER Chapters,in: NBER Macroeconomics Annual 2005, Volume 20, pages 1-100 National Bureau of Economic Research, Inc.
    2. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages 1-33, March.
    3. Edward C. Prescott, 2004. "Why do Americans work so much more than Europeans?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Jul, pages 2-13.
    4. Conny Olovsson, 2009. "Why Do Europeans Work So Little?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(1), pages 39-61, February.
    5. Richard Rogerson, 2007. "Taxation and market work: is Scandinavia an outlier?," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 32(1), pages 59-85, July.
    6. 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, January.
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    Cited by:

    1. Alessandra Casarico & Alessandro Sommacal, 2012. "Labor Income Taxation, Human Capital, and Growth: The Role of Childcare," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(4), pages 1182-1207, December.
    2. Tavares, Tiago, 2015. "Labor Market Distortions under Sovereign Default Crises," MPRA Paper 66964, University Library of Munich, Germany.
    3. Gómez, Manuel A., 2016. "Are taxes a good predictor of time use patterns? Examining the role of some key elasticities," Economic Modelling, Elsevier, vol. 55(C), pages 394-400.
    4. Ian Dew-Becker & Robert J. Gordon, 2008. "The Role of Labor Market Changes in the Slowdown of European Productivity Growth," NBER Working Papers 13840, National Bureau of Economic Research, Inc.

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    Keywords

    Taxation ; Labor market ; Hours of labor;

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