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Labor Supply Elasticities in Europe and the US

  • Olivier Bargain

    (University College Dublin)

  • Kristian Orsini

    (University of Leuven)

  • Andreas Peichl

    (University of Cologne)

Despite numerous studies on labor supply, the size of elasticities is rarely com- parable across countries. In this paper, we suggest the first large-scale international comparison of elasticities, while netting out possible differences due to methods, data selection and the period of investigation. We rely on comparable data for 17 Euro- pean countries and the US, a common empirical approach and a complete simulation of tax-benefit policies affecting household budgets. We find that wage-elasticities are small and vary less across countries than previously thought, e.g., between .2 and .6 for married women. Results are robust to several modeling assumptions. We show that differences in tax-benefit systems or demographic compositions explain little of the cross-country variation, leaving room for other interpretations, notably in terms of heterogeneous work preferences. We derive important implications for research on optimal taxation.

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File Function: First version, 2011
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Paper provided by School Of Economics, University College Dublin in its series Working Papers with number 201114.

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Length: 47 pages
Date of creation: 27 Jul 2011
Date of revision:
Handle: RePEc:ucn:wpaper:201114
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Web page: http://www.ucd.ie/economics

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