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Marriage Stability, Taxation and Aggregate Labor Supply in the U.S. vs. Europe

  • Holter, Hans A

    ()

    (Uppsala Center for Fiscal Studies)

  • Chakraborty, Indraneel

    ()

    (Southern Methodist University)

  • Stepanchuk, Serhiy

    ()

    (Magyar Nemzeti Bank)

Americans work more than Europeans. Using micro data from the U.S. and 17 European countries, we study the contributions from demographic subgroups to these aggregate level di erences. We document that women are typically the largest contributors to the discrepancy in work hours. We also document a negative empirical correlation between hours worked and di erent measures of taxation, driven by men, and a positive correlation between hours worked and divorce rates, driven by women. Motivated by these observations, we develop a life-cycle model with heterogeneous agents, marriage and divorce and use it to study the impact of two mechanisms on labor supply: (i) di erences in marriage stability and (ii) di erences in tax systems. We calibrate the model to U.S. data and study how labor supply in the U.S. changes as we introduce European tax systems, and as we replace the U.S. divorce and marriage rates with their European equivalents. We nd that the divorce and tax mechanisms combined explain 58% of the variation in labor supply between the U.S. and the European countries in our sample.

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Paper provided by Uppsala University, Department of Economics in its series Working Paper Series, Center for Fiscal Studies with number 2012:7.

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Length: 64 pages
Date of creation: 27 May 2012
Date of revision:
Handle: RePEc:hhs:uufswp:2012_007
Contact details of provider: Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
Web page: http://www.nek.uu.se/Email:


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  1. Michael P. Keane, 2011. "Labor Supply and Taxes: A Survey," Journal of Economic Literature, American Economic Association, vol. 49(4), pages 961-1075, December.
  2. Claudia Olivetti, 2005. "Changes in Women's Hours of Market Work: The Role of Returns to Experience," Boston University - Department of Economics - Macroeconomics Working Papers Series WP2005-008, Boston University - Department of Economics, revised Jun 2006.
  3. Kimmel, Jean & Kniesner, Thomas J., 1998. "New evidence on labor supply:: Employment versus hours elasticities by sex and marital status," Journal of Monetary Economics, Elsevier, vol. 42(2), pages 289-301, July.
  4. Fatih Guvenen & Burhanettin Kuruscu & Serdar Ozkan, 2009. "Taxation of human capital and wage inequality: a cross-country analysis," IFS Working Papers W09/23, Institute for Fiscal Studies.
  5. Michelle Rendall, 2013. "The Service Sector and Female Market Work: Europe vs the US," 2013 Meeting Papers 1202, Society for Economic Dynamics.
  6. Richard Rogerson, 2007. "Structural Transformation and the Deterioration of European Labor Market Outcomes," NBER Working Papers 12889, National Bureau of Economic Research, Inc.
  7. Orazio Attanasio & Hamish Low & Virginia Sanchez-Marcos, 2008. "Explaining Changes in Female Labor Supply in a Life-Cycle Model," American Economic Review, American Economic Association, vol. 98(4), pages 1517-52, September.
  8. Blundell, Richard & Bozio, Antoine & Laroque, Guy, 2011. "Extensive and Intensive Margins of Labour Supply: Working Hours in the US, UK and France," IZA Discussion Papers 6051, Institute for the Study of Labor (IZA).
  9. Cubeddu, Luis & Ríos-Rull, José-Víctor, 2003. "Families as Shocks," CEPR Discussion Papers 3924, C.E.P.R. Discussion Papers.
  10. Bick, Alexander & Fuchs-Schündeln, Nicola, 2012. "Taxation and Labor Supply of Married Women across Countries: A Macroeconomic Analysis," CEPR Discussion Papers 9115, C.E.P.R. Discussion Papers.
  11. Nezih Guner & Remzi Kaygusuz & Gustavo Ventura, 2012. "Taxation and Household Labour Supply," Review of Economic Studies, Oxford University Press, vol. 79(3), pages 1113-1149.
  12. Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
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