Why Does Labor Supply Vary across Countries? The Role of Taxation, Social Security, and Health Care Institutions

In this paper, we first use household survey data to documents facts on the heterogeneity and life-cycle dynamics of labor supply across many European countries and the U.S. We also document a substantial variation in the out-of-pocket medical expenses faced by individuals across countries. We then build a life-cycle theory of labor supply decisions in an incomplete markets framework with wage and health shocks, progressive taxation, and a social security system. We use the theory to study how the cross country variation in taxation, social security system, and out-of-pocket medical expenses accounts for the cross country patterns in retirement and labor supply. Preliminary results indicate that the theory accounts well for the cross country variation in labor supply documented in the data and that all three features play an important role.