Effects of labor taxes on hours of market and home work: The role of international capital mobility and trade

This paper evaluates the Prescott (2004) hypothesis that permanently higher payroll taxes fully explain the decline in number of market hours worked in Europe (relative to America) over three decades. The Prescott model made assumptions that, in steady state, left out any incentive for either intern...

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Main Author: HOON, Hian Teck
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Language:English
Published: Institutional Knowledge at Singapore Management University 2014
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Online Access:https://ink.library.smu.edu.sg/soe_research_all/15
https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=1014&context=soe_research_all
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spelling sg-smu-ink.soe_research_all-10142017-06-08T06:16:37Z Effects of labor taxes on hours of market and home work: The role of international capital mobility and trade HOON, Hian Teck This paper evaluates the Prescott (2004) hypothesis that permanently higher payroll taxes fully explain the decline in number of market hours worked in Europe (relative to America) over three decades. The Prescott model made assumptions that, in steady state, left out any incentive for either international capital mobility or international exchange of goods. We study a one-good model where the imposition of higher payroll taxes in one region leads to higher domestic real interest rate in that region. As a result, there are incentives for international capital outflows into the high payroll tax region with the consequence that number of market hours worked in the low payroll tax region also decline. With identical tastes and rate of time discount across the two regions, we find that the number of hours worked in the market, home work, and leisure are equalized across the two regions. In the multi-good model, when factor price equalization holds so free trade acts as a substitute for factor mobility, we show that there is also equalization of market work, home work, and leisure across the two regions. 2014-04-01T07:00:00Z text application/pdf https://ink.library.smu.edu.sg/soe_research_all/15 https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=1014&context=soe_research_all http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection School of Economics eng Institutional Knowledge at Singapore Management University Bias High dimension Refit Regularization. Labor Economics Labor Relations Taxation
institution Singapore Management University
building SMU Libraries
country Singapore
collection InK@SMU
language English
topic Bias
High dimension
Refit
Regularization.
Labor Economics
Labor Relations
Taxation
spellingShingle Bias
High dimension
Refit
Regularization.
Labor Economics
Labor Relations
Taxation
HOON, Hian Teck
Effects of labor taxes on hours of market and home work: The role of international capital mobility and trade
description This paper evaluates the Prescott (2004) hypothesis that permanently higher payroll taxes fully explain the decline in number of market hours worked in Europe (relative to America) over three decades. The Prescott model made assumptions that, in steady state, left out any incentive for either international capital mobility or international exchange of goods. We study a one-good model where the imposition of higher payroll taxes in one region leads to higher domestic real interest rate in that region. As a result, there are incentives for international capital outflows into the high payroll tax region with the consequence that number of market hours worked in the low payroll tax region also decline. With identical tastes and rate of time discount across the two regions, we find that the number of hours worked in the market, home work, and leisure are equalized across the two regions. In the multi-good model, when factor price equalization holds so free trade acts as a substitute for factor mobility, we show that there is also equalization of market work, home work, and leisure across the two regions.
format text
author HOON, Hian Teck
author_facet HOON, Hian Teck
author_sort HOON, Hian Teck
title Effects of labor taxes on hours of market and home work: The role of international capital mobility and trade
title_short Effects of labor taxes on hours of market and home work: The role of international capital mobility and trade
title_full Effects of labor taxes on hours of market and home work: The role of international capital mobility and trade
title_fullStr Effects of labor taxes on hours of market and home work: The role of international capital mobility and trade
title_full_unstemmed Effects of labor taxes on hours of market and home work: The role of international capital mobility and trade
title_sort effects of labor taxes on hours of market and home work: the role of international capital mobility and trade
publisher Institutional Knowledge at Singapore Management University
publishDate 2014
url https://ink.library.smu.edu.sg/soe_research_all/15
https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=1014&context=soe_research_all
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