Working Paper: NBER ID: w10316
Authors: Edward C. Prescott
Abstract: Americans now work 50 percent more than do the Germans, French, and Italians. This was not the case in the early 1970s when the Western Europeans worked more than Americans. In this paper, I examine the role of taxes in accounting for the differences in labor supply across time and across countries, in particular, the effect of the marginal tax rate on labor income. The population of countries considered is that of the G-7 countries, which are the major advanced industrial countries. The surprising finding is that this marginal tax rate accounts for the predominance of the differences at points in time and the large change in relative labor supply over time with the exception of the Italian labor supply in the early 1970s. This finding has important implications for policy, in particular for making social security programs solvent.
Keywords: labor supply; tax rates; social security; G7 countries
JEL Codes: E6; H3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Marginal tax rate on labor income (H31) | Differences in labor supply between Americans and Europeans (J29) |
| Increasing tax rates (H29) | Revenue (H29) |
| Reforms to the tax system (H29) | Labor supply (J22) |