How Does Taxation Affect Hours Worked in EU New Member States?

Author/Editor:

Agustin Velasquez ; Svetlana Vtyurina

Publication Date:

June 17, 2019

Electronic Access:

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

Hours worked vary widely across countries and over time. In this paper, we investigate the role played by taxation in explaining these differences for EU New Member States. By extending a standard growth model with novel data on consumption and labor taxes, we assess the evolution of trends in hours worked over the 1995-2017 period. We find that the inclusion of tax rates in the model significantly improves the tracking of hours. We also estimate the elasticity of hours (and its different margins) to quantify the deadweight loss introduced by consumption and labor taxes. We find that these taxes explain a large share of labor supply differences across EU New Member States and that the potential gains from policy actions are noteworthy.

Series:

Working Paper No. 19/130

Subject:

English

Publication Date:

June 17, 2019

ISBN/ISSN:

9781498315708/1018-5941

Stock No:

WPIEA2019130

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

35

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