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Taxation and Market Work: Is Scandinavia an Outlier?

  • Richard Rogerson

This paper argues that it is essential to explicitly consider how the government spends tax revenues when assessing the effects of tax rates on aggregate hours of market work. Different forms of government spending imply different elasticities of hours of work with regard to tax rates. I illustrate the empirical importance of this point by addressing the issue of hours worked and tax rates in three sets of economies: the US, Continental Europe and Scandinavia. While tax rates are highest in Scandinavia, hours worked in Scandinavia are significantly higher than they are in Continental Europe. I argue that differences in the form of government spending can potentially account for this pattern.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12890.

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Date of creation: Feb 2007
Date of revision:
Publication status: published as Richard Rogerson, 2007. "Taxation and market work: is Scandinavia an outlier?," Economic Theory, Springer, vol. 32(1), pages 59-85, July.
Handle: RePEc:nbr:nberwo:12890
Note: EFG PE
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  1. Olovsson, Conny, 2004. "Why do Europeans Work so Little?," Seminar Papers 727, Stockholm University, Institute for International Economic Studies.
  2. Edward C. Prescott, 2003. "Why do Americans work so much more than Europeans?," Staff Report 321, Federal Reserve Bank of Minneapolis.
  3. Susumu Imai & Michael P. Keane, 2004. "Intertemporal Labor Supply and Human Capital Accumulation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(2), pages 601-641, 05.
  4. Yongsung Chang & Frank Schorfheide, 2002. "Labor-Supply Shifts and Economic Fluctuations," Macroeconomics 0204005, EconWPA.
  5. 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, vol. 34(3), pages 297-323, December.
  6. Rupert, Peter & Rogerson, Richard & Wright, Randall, 1995. "Estimating Substitution Elasticities in Household Production Models," Economic Theory, Springer, vol. 6(1), pages 179-93, June.
  7. Mark Aguiar & Erik Hurst, 2005. "Lifecycle Prices and Production," NBER Working Papers 11601, National Bureau of Economic Research, Inc.
  8. Richard Rogerson, 2007. "Structural Transformation and the Deterioration of European Labor Market Outcomes," NBER Working Papers 12889, National Bureau of Economic Research, Inc.
  9. Davis, Steven J. & Henrekson, Magnus, 2004. "Tax Effects on Work Activity, Industry Mix and Shadow Economy Size: Evidence from Rich-Country Comparisons," SSE/EFI Working Paper Series in Economics and Finance 560, Stockholm School of Economics.
  10. Richard Rogerson, 2004. "Two Views on the Deterioration of European Labor Market Outcomes," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 447-455, 04/05.
  11. Daveri, Francesco & Tabellini, Guido, 1997. "Unemployment, Growth and Taxation in Industrial Countries," CEPR Discussion Papers 1681, C.E.P.R. Discussion Papers.
  12. Edward C. Prescott, 2006. "Nobel Lecture: The Transformation of Macroeconomic Policy and Research," Journal of Political Economy, University of Chicago Press, vol. 114(2), pages 203-235, April.
  13. Sherwin Rosen, 1996. "Public Employment and the Welfare State in Sweden," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 729-740, June.
  14. McGrattan, Ellen R & Rogerson, Richard & Wright, Randall, 1997. "An Equilibrium Model of the Business Cycle with Household Production and Fiscal Policy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(2), pages 267-90, May.
  15. 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.
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