IDEAS home Printed from https://ideas.repec.org/a/eee/dyncon/v35y2011i9p1474-1488.html
   My bibliography  Save this article

Can progressive taxation account for cross-country variation in labor supply?

Author

Listed:
  • Koyuncu, Murat

Abstract

The difference between average hours worked in the US and average hours worked in Continental European countries has been increasing since the early 1970s. To explain this phenomenon, this paper develops an endogenous growth model with two key properties: agents are heterogeneous in their rates of time preference and labor skills, and the model incorporates progressive income taxes. The model is calibrated to US and German data for the periods 1971-1974 and 1986-1989. Our findings suggest that the degree of progressivity is a major factor in explaining the patterns of the US and German labor supply over time. Predictions of the model also match the distributional trends in both countries during this time period.

Suggested Citation

  • Koyuncu, Murat, 2011. "Can progressive taxation account for cross-country variation in labor supply?," Journal of Economic Dynamics and Control, Elsevier, vol. 35(9), pages 1474-1488, September.
    • Handle: RePEc:eee:dyncon:v:35:y:2011:i:9:p:1474-1488
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S016518891100090X
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Turnovsky, Stephen J. & Garci­a-Peñalosa, Cecilia, 2008. "Distributional dynamics in a neoclassical growth model: The role of elastic labor supply," Journal of Economic Dynamics and Control, Elsevier, vol. 32(5), pages 1399-1431, May.
    3. Alberto Alesina & Edward Glaeser & Bruce Sacerdote, 2005. "Work and Leisure in the U. S. and Europe: Why so Different?," Harvard Institute of Economic Research Working Papers 2068, Harvard - Institute of Economic Research.
    4. Sorger, Gerhard, 2002. "On the Long-Run Distribution of Capital in the Ramsey Model," Journal of Economic Theory, Elsevier, vol. 105(1), pages 226-243, July.
    5. Fatih Guvenen & Burhanettin Kuruscu & Serdar Ozkan, 2014. "Taxation of Human Capital and Wage Inequality: A Cross-Country Analysis," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 81(2), pages 818-850.
    6. Ohanian, Lee & Raffo, Andrea & Rogerson, Richard, 2008. "Long-term changes in labor supply and taxes: Evidence from OECD countries, 1956-2004," Journal of Monetary Economics, Elsevier, vol. 55(8), pages 1353-1362, November.
    7. Guo, Jang-Ting & Lansing, Kevin J., 1998. "Indeterminacy and Stabilization Policy," Journal of Economic Theory, Elsevier, vol. 82(2), pages 481-490, October.
    8. Guvenen, Fatih, 2006. "Reconciling conflicting evidence on the elasticity of intertemporal substitution: A macroeconomic perspective," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1451-1472, October.
    9. Edward C. Prescott, 2004. "Why do Americans work so much more than Europeans?," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 28(Jul), pages 2-13.
    10. Thomas Piketty & Emmanuel Saez, 2007. "How Progressive is the U.S. Federal Tax System? A Historical and International Perspective," Journal of Economic Perspectives, American Economic Association, vol. 21(1), pages 3-24, Winter.
    11. Bell, Linda A. & Freeman, Richard B., 2001. "The incentive for working hard: explaining hours worked differences in the US and Germany," Labour Economics, Elsevier, vol. 8(2), pages 181-202, May.
    12. Javier Diaz-Gimenez & Vincenzo Quadrini & José-Víctor Ríos-Rull, 1997. "Dimensions of inequality: facts on the U.S. distributions of earnings, income, and wealth," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 21(Spr), pages 3-21.
    13. Cecilia García-Peñalosa & Stephen Turnovsky, 2006. "Growth and income inequality: a canonical model," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 28(1), pages 25-49, May.
    14. Cecilia García-Peñalosa & Stephen Turnovsky, 2008. "Consumption externalities: a representative consumer model when agents are heterogeneous," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 37(3), pages 439-467, December.
    15. Daniel Feenberg & Elisabeth Coutts, 1993. "An introduction to the TAXSIM model," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(1), pages 189-194.
    16. Richard Rogerson, 2008. "Structural Transformation and the Deterioration of European Labor Market Outcomes," Journal of Political Economy, University of Chicago Press, vol. 116(2), pages 235-259, April.
    17. Giacomo Corneo, 2005. "The Rise and Likely Fall of the German Income Tax, 1958–2005," CESifo Economic Studies, CESifo Group, vol. 51(1), pages 159-186.
    18. Gerhard Sorger, 2000. "Income and wealth distribution in a simple model of growth," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 16(1), pages 23-42.
    19. Cecilia Garcõa-Peñalosa & Stephen J. Turnovsky, 2007. "Growth, Income Inequality, and Fiscal Policy: What Are the Relevant Trade-offs?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2-3), pages 369-394, March.
    20. Daniel R. Carroll & Eric R. Young, 2009. "The Stationary Distribution of Wealth under Progressive Taxation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(3), pages 469-478, July.
    21. Bosi, Stefano & Seegmuller, Thomas, 2010. "On the role of progressive taxation in a Ramsey model with heterogeneous households," Journal of Mathematical Economics, Elsevier, vol. 46(6), pages 977-996, November.
    22. Koyuncu, Murat & Turnovsky, Stephen J., 2010. "Aggregate And Distributional Effects Of Tax Policy With Interdependent Preferences: The Role Of “Catching Up With The Joneses”," Macroeconomic Dynamics, Cambridge University Press, vol. 14(S2), pages 200-223, November.
    23. Jaume Ventura & Francesco Caselli, 2000. "A Representative Consumer Theory of Distribution," American Economic Review, American Economic Association, vol. 90(4), pages 909-926, September.
    24. Li Wenli & Pierre -Daniel Sarte, 2004. "Progressive Taxation and Long-Run Growth," American Economic Review, American Economic Association, vol. 94(5), pages 1705-1716, December.
    25. repec:bla:revinw:v:35:y:1989:i:2:p:107-31 is not listed on IDEAS
    26. Sarte, Pierre-Daniel G., 1997. "Progressive taxation and income inequality in dynamic competitive equilibrium," Journal of Public Economics, Elsevier, vol. 66(1), pages 145-171, October.
    27. Rios-Rull, Jose-Victor, 1993. "Working in the Market, Working at Home, and the Acquisition of Skills: A General-Equilibrium Approach," American Economic Review, American Economic Association, vol. 83(4), pages 893-907, September.
    28. Mchel O'Higgins & Guenther Schmaus & Geofrey Stephenson, 1989. "Income Distribution And Redistribution: A Microdata Analysis For Seven Countries," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 35(2), pages 107-131, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Carneiro, Fernando Moraes & Turnovsky, Stephen J. & Tourinho, Octavio Augusto Fontes, 2022. "Economic growth and inequality tradeoffs under progressive taxation," Journal of Economic Dynamics and Control, Elsevier, vol. 143(C).
    2. Willem DEVRIENDT & Freddy HEYLEN, 2020. "Macroeconomic and Distributional Effects of Demographic Change in an Open Economy - The Case of Belgium," JODE - Journal of Demographic Economics, Cambridge University Press, vol. 86(1), pages 87-124, March.
    3. Brecht Boone & Freddy Heylen, 2019. "Cross‐Country Differences in Unemployment: Fiscal Policy, Unions, and Household Preferences in General Equilibrium," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(3), pages 1270-1302, July.
    4. Üngör, Murat, 2014. "Some thought experiments on the changes in labor supply in Turkey," Economic Modelling, Elsevier, vol. 39(C), pages 265-272.
    5. Devriendt, Willem & Heylen, Freddy & Jacobs, Arthur, 2023. "Coping with demographic change: macroeconomic performance and welfare inequality effects of public pension reform," Journal of Pension Economics and Finance, Cambridge University Press, vol. 22(3), pages 425-449, July.
    6. Chun‐Chieh Huang & Juin‐Jen Chang & Hsiao‐Wen Hung, 2020. "Progressive Tax and Inequality in a Unionized Economy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 122(1), pages 38-80, January.
    7. Li, Chengjian & Lin, Shuanglin, 2015. "Tax progressivity and tax incidence of the rich and the poor," Economics Letters, Elsevier, vol. 134(C), pages 148-151.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Cecilia García‐Peñalosa & Stephen J. Turnovsky, 2011. "Taxation and Income Distribution Dynamics in a Neoclassical Growth Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(8), pages 1543-1577, December.
    2. Kazuo Mino & Yasuhiro Nakamoto, 2008. "Progressive Taxation, Wealth Distribution, and Macroeconomic Stability," Discussion Papers in Economics and Business 08-22, Osaka University, Graduate School of Economics.
    3. Cecilia García-Peñalosa & Stephen J. Turnovsky, 2012. "Income Inequality, Mobility, and the Accumulation of Capital. The role of Heterogeneous Labor Productivity," AMSE Working Papers 1216, Aix-Marseille School of Economics, France.
    4. Atolia, Manoj & Chatterjee, Santanu & Turnovsky, Stephen J., 2012. "Growth and inequality: Dependence on the time path of productivity increases (and other structural changes)," Journal of Economic Dynamics and Control, Elsevier, vol. 36(3), pages 331-348.
    5. Marcel Aloy & Gilles de Truchis, 2012. "Estimation and Testing for Fractional Cointegration," AMSE Working Papers 1215, Aix-Marseille School of Economics, France.
    6. Chen, Shu-Hua, 2020. "Inequality-growth nexus under progressive income taxation," Journal of Macroeconomics, Elsevier, vol. 65(C).
    7. Stephen J. Turnovsky, 2013. "The relationship between economic growth and inequality," New Zealand Economic Papers, Taylor & Francis Journals, vol. 47(2), pages 113-139, August.
    8. Carneiro, Fernando Moraes & Turnovsky, Stephen J. & Tourinho, Octavio Augusto Fontes, 2022. "Economic growth and inequality tradeoffs under progressive taxation," Journal of Economic Dynamics and Control, Elsevier, vol. 143(C).
    9. Chen, Yu-chin & Turnovsky, Stephen J., 2010. "Growth and inequality in a small open economy," Journal of Macroeconomics, Elsevier, vol. 32(2), pages 497-514, June.
    10. Bosi, Stefano & Seegmuller, Thomas, 2010. "On the role of progressive taxation in a Ramsey model with heterogeneous households," Journal of Mathematical Economics, Elsevier, vol. 46(6), pages 977-996, November.
    11. Cecilia García-Peñalosa & Stephen Turnovsky, 2008. "Consumption externalities: a representative consumer model when agents are heterogeneous," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 37(3), pages 439-467, December.
    12. Stephen Turnovsky & Cecilia Garcia Penalosa, 2006. "The Dynamics of Wealth and Income distribution in a Neoclassical Growth Model," Computing in Economics and Finance 2006 318, Society for Computational Economics.
    13. Nakamoto, Yasuhiro, 2015. "Heterogeneous EIS and Wealth Distribution in a Neoclassical Growth Model," MPRA Paper 67026, University Library of Munich, Germany.
    14. Turnovsky, Stephen J., 2015. "Economic growth and inequality: The role of public investment," Journal of Economic Dynamics and Control, Elsevier, vol. 61(C), pages 204-221.
    15. Cecilia Garcõa-Peñalosa & Stephen J. Turnovsky, 2007. "Growth, Income Inequality, and Fiscal Policy: What Are the Relevant Trade-offs?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2-3), pages 369-394, March.
    16. Atolia, Manoj & Papageorgiou, Chris & Turnovsky, Stephen J., 2021. "Re-opening after the lockdown: Long-run aggregate and distributional consequences of COVID-19," Journal of Mathematical Economics, Elsevier, vol. 93(C).
    17. Getachew, Yoseph Y. & Turnovsky, Stephen J., 2015. "Productive government spending and its consequences for the growth–inequality tradeoff," Research in Economics, Elsevier, vol. 69(4), pages 621-640.
    18. Turnovsky, Stephen J. & Garci­a-Peñalosa, Cecilia, 2008. "Distributional dynamics in a neoclassical growth model: The role of elastic labor supply," Journal of Economic Dynamics and Control, Elsevier, vol. 32(5), pages 1399-1431, May.
    19. Nicola Fuchs-Schündeln & Alexander Bick, 2014. "Taxation and Labor Supply of Married Women across Countries: A Macroeconomic Analysis," 2014 Meeting Papers 321, Society for Economic Dynamics.
    20. Kazuo Mino & Yasuhiro Nakamoto, 2009. "Consumption Externalities and Wealth Distribution in a Neoclassical Growth Model," KIER Working Papers 683, Kyoto University, Institute of Economic Research.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:dyncon:v:35:y:2011:i:9:p:1474-1488. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jedc .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.